IMF approves $3.6bn long-term lending support for low-income countries

The Executive Board of the International Monetary Fund (IMF) has approved a set of reforms to the Fund’s concessional lending facilities and a strategy to preserve the Fund’s ability to provide adequate support to Low-Income Countries (LICs) over the long term.

A statement by the IMF Monday 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.”