IMF Approves Reforms to Support Low-Income Countries From Shocks

The International Monetary Fund (IMF) has approved a set of reforms that will help it support Low-Income Countries (LICs) from shocks over the long term.

The changes to the lender’s concessional lending facilities were contained in a statement by the IMF on Monday.

The US-based lender said these reforms are detailed in the staff paper “2024 Review of the Poverty Reduction and Growth Trust (PRGT) Facilities and Financing—Reform Proposals.”

The fund said it significantly scaled up support to its low-income members in response to the COVID-19 pandemic and subsequent major shocks.

“The annual lending commitments have risen to an average of SDR 5.5 billion since 2020, compared with about SDR 1.2 billion during the preceding decade,” the statement said.

“Outstanding PRGT credit has tripled since the pandemic’s onset, while funding costs at the SDR interest rate have risen sharply. As a result, the PRGT faces an acute funding shortfall, with its self-sustained lending capacity projected to decline, absent reforms, to about SDR 1 billion a year by 2027, well below expected demand.”

The reforms approved by the IMF’s Executive Board aim at maintaining adequate financial support to low-income countries while restoring the self-sustainability of the PRGT.

“The Executive Board today endorsed a long-term annual lending envelope of SDR 2.7 billion ($3.6 billion) and approved a package of policy reforms and resource mobilization to support that lending capacity.

“The envelope, which is more than twice the pre-pandemic capacity, is calibrated to ensure that the Fund can use its limited concessional resources to continue providing vital balance of payment support to LICs, while supporting strong economic policies and catalyzing fresh financing from other sources.

“The Review includes policy changes that reflect the increasing economic heterogeneity among LICs. A new tiered interest rate mechanism will enhance the targeting of scarce PRGT resources to the poorest LICs, which will continue to benefit from interest-free lending, while better-off LICs will be charged a modest, and still concessional, interest rate,” the statement said.

After a successful bilateral fundraising, and in the context of a robust financial outlook for the Fund, the membership reached consensus on a framework to deploy IMF internal resources to facilitate the generation of PRGT subsidy resources.

Specifically, the fund said SDR 5.9 billion (about $ 8 billion), in 2025 present value terms, is expected to be generated through a framework to distribute GRA net income and/or reserves over the next five years.

This is in addition to bilateral subsidy contributions, the subsidy savings from the new interest rate mechanism, and financing from a proposed further five-year suspension of PRGT administrative expenses reimbursement to the GRA.