Selected Decisions and Selected Documents of the IMF, Thirty- Eighth Issue -- The Acting Chair’s Summing Up—Poverty Reduction and Growth Trust—Review of Interest Rate Structure, Executive Board Meeting 14/109, December 10, 2014

Prepared by the Legal Department of the IMF
As updated as of February 29, 2016

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ARTICLE V, SECTION 2(b)
Technical and Financial Services
Financial Services

The Acting Chair’s Summing Up— Poverty Reduction and Growth Trust— Review of Interest Rate Structure

Executive Board Meeting 14/109, December 10, 2014

Directors welcomed the opportunity to review the interest rate structure for loans under the Poverty Reduction and Growth Trust (PRGT) and the mechanism established in 2009, which differentiates interest rates among the PRGT facilities and links these to developments in world interest rates as reflected in the SDR interest rate.

Directors noted that, since the PRGT interest rate mechanism was adopted, the SDR interest rate has remained well below the 2 percent threshold. The application of the mechanism for 2015–16 would imply that the interest rate be set at zero percent for both the Extended Credit Facility and the Rapid Credit Facility, and at 0.25 percent for the Standby Credit Facility. The rate charged on remaining credit under the Exogenous Shocks Facility, which is not set by the PRGT interest rate mechanism, would be 0.25 percent.

Directors recalled that the Board in 2009 approved temporary interest relief on outstanding concessional Fund credit owed by PRGT-eligible members and that this waiver has been extended twice, most recently through end-2014. Directors noted that such interest relief has benefited many low-income countries (LICs).

Against this background, Directors agreed to extend the exceptional interest waiver on outstanding Fund concessional credit by another two years. They concurred that this extension would signal the Fund’s continued support for LICs at a time when these members continue to face economic headwinds from the global economic environment. Directors also noted that it would avoid a situation where some PRGT borrowers would face an increase in interest rates at a time when global interest rates remain near zero, and would be required to pay a rate on their outstanding concessional credit exceeding the PRGT’s cost of funding such credits.

Directors observed that the temporary extension of interest relief by two years would have only a modest estimated cost for the PRGT and would remain consistent with the self-sustained baseline capacity envisaged under the three-pillar strategy for PRGT financing. However, they emphasized that it remains important that the PRGT interest rate mechanism be allowed to function as intended, once the current exceptional circumstances subside, so as to safeguard the self-sustaining capacity of the PRGT.

BUFF/14/116

December 12, 2014

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