In 2009, the IMF strengthened its support for low-income countries, reflecting the changing nature of economic conditions in these countries and their increased vulnerabilities due to the effects of the global economic crisis. It has overhauled its lending instruments, especially to address more directly countries’ needs for short-term and emergency support. In 2015, the IMF’s support for its poorest members was boosted by increasing their access to concessional resources. The Fund has adopted a strategy to support concessional lending of about $1.8 billion a year over the longer term, financed in part by contributions linked to the distribution of gold sales profits.
Signs of success
Many low-income countries (LICs) have made great strides toward macroeconomic stability. In the 1990s, the vast majority of low-income countries faced long-standing economic problems that required radical, long-term policy changes often accompanied by debt relief or cancellation. Now, however, many of these economies are becoming more open and integrated into the global economy. Many LICs are joining international capital markets, attracting foreign investment, and nurturing their own private financial sectors.
Changes in lending instruments
To make its financial support more flexible and tailored to the diversity of low-income countries, in 2010, the IMF has established a Poverty Reduction and Growth Trust, which has three concessional lending windows:
The Extended Credit Facility (ECF): Provides sustained engagement over the medium to long term, in case of protracted balance of payments problems;
The Standby Credit Facility (SCF): Provides financing to low-income countries with actual or potential short-term balance of payments and adjustment needs caused by domestic or external shocks, or policy slippages; the SCF can also be used on a precautionary basis in periods of increased risk and uncertainty.
The Rapid Credit Facility(RCF): Provides rapid financial support without conditionality in a single, up-front payout for low-income countries facing urgent balance of payments needs, and offers repeated disbursements over a (limited) period in case of recurring or ongoing balance of payments needs.
All these facilities provide financing suitable to the diverse needs of LICs and on concessional terms. LICs are receiving exceptional forgiveness through end-2016 on all interest payments due to the IMF under its concessional lending instruments. The interest rate on RCF financing is set permanently at zero to further enhance support for PRGT-eligible countries in fragile situations and those hit by natural disasters.
For policy advice and signaling, countries can request non-financial assistance under the Policy Support Instrument (PSI), which
- Supports low-income countries that are in a broadly stable macroeconomic position at the time of the approval and thus do not need IMF financial assistance;
- Can provide accelerated access to the SCF in case of subsequent financial needs.
In response to the increased financial needs of low-income countries during and after the global financial crisis, IMF concessional lending commitments increased significantly and totaled $11 billion during 2009–14.
In addition, more than $18 billion of the $250 billion allocation of IMF Special Drawing Rights (SDRs) went to low-income countries. These countries can benefit by either counting the SDRs as extra assets in their reserves, or selling their SDRs for hard currency to meet balance of payments needs.
In September 2012, the Executive Board approved a partial distribution of the Fund’s general reserves attributed to gold sales profits as part of a strategy to make the PRGT sustainable in the longer term. This strategy is expected to be robust under a wide range of demand scenarios and rests on three pillars: (i) a base envelope of about SDR 1¼ billion (about $1.8 billion) in annual lending capacity; (ii) contingent measures that can be activated when average financing needs exceed the base envelope by a substantial margin for an extended period; and (iii) the expectation that all modifications to LIC facilities should be consistent with maintaining self-sustainability.
In February 2015, the IMF transformed the Post-Catastrophe Debt Relief Trust (PCDR), which allows the IMF to join international debt relief efforts for very poor countries that are hit by the most catastrophic of natural disasters into the Catastrophe Containment and Relief (CCR) Trust. The new trust allows the Fund to join international debt relief efforts when poor countries are hit by the most catastrophic of natural disasters and to assist poor countries battling with public health disasters—such as epidemics of infectious diseases—with grants for debt service relief. Three Ebola-afflicted countries (Guinea, Liberia, and Sierra Leone) requested assistance from this new trust, totaling about US$100 million in February-March 2015.
In July 2015, the IMF adopted a number of new initiatives, within its mandate, to support its member countries as they embark on pursuing the new Sustainable Development Goals (SDGs). In this context, the IMF also further strengthened the financial safety net for low-income countries by increasing access to all its concessional facilities by 50 percent. In addition, the use of concessional resources was targeted more towards poorer and more vulnerable countries while the mix of financial support for better-off countries would be rebalanced from concessional to non-concessional resources. Finally, efforts are currently underway to secure additional loan resources of about $15 billion (SDR 11 billion) to support the IMF’s concessional lending activities.