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A Factsheet - April 2008

IMF Lending

The changing nature of IMF lending

The volume of loans provided by the IMF has fluctuated significantly over time. The oil shock of the 1970s and the debt crisis of the 1980s were both followed by sharp increases in IMF lending. In the 1990s, the transition process in Central and Eastern Europe and the crises in emerging market economies led to further surges of demand for IMF resources, which have largely been repaid as conditions improved.

The process of IMF lending

Upon request by a member country, an IMF loan is usually provided under an "arrangement," which stipulates the specific policies and measures a country has agreed to implement to resolve its balance of payments problem. The economic program underlying an arrangement is formulated by the country in consultation with the IMF, and is presented to the Fund's Executive Board in a "Letter of Intent." Once an arrangement is approved by the Board, the loan is released in phased installments as the program is implemented.

IMF Facilities

Over the years, the IMF has developed various loan instruments, or "facilities," that are tailored to address the specific circumstances of its diverse membership. Low-income countries may borrow at a concessional interest rate through the Poverty Reduction and Growth Facility (PRGF) and the Exogenous Shocks Facility (ESF). Non-concessional loans are provided mainly through Stand-By Arrangements (SBA), and occasionally using the Extended Fund Facility (EFF), the Supplemental Reserve Facility (SRF), and the Compensatory Financing Facility (CFF). The IMF also provides emergency assistance to support recovery from natural disasters and conflicts, in some cases at concessional interest rates. The IMF continues to explore possible crisis prevention instruments.

Except for the PRGF and the ESF, all facilities are subject to the IMF's market-related interest rate, known as the "rate of charge," and some carry a surcharge. The rate of charge is based on the SDR interest rate, which is revised weekly to take account of changes in short-term interest rates in major international money markets. Large loans carry a surcharge. The amount that a country can borrow from the Fund-its "access limit"-varies depending on the type of loan, but is typically a multiple of the country's IMF quota. In exceptional circumstances, some loans may exceed the access limits.

Poverty Reduction and Growth Facility (PRGF) and Exogenous Shocks Facility (ESF). Concessional lending arrangements to low-income countries are underpinned by comprehensive country-owned strategies, delineated in their Poverty Reduction Strategy Papers (PRSPs). In recent years, the largest number of IMF loans has been made through the PRGF. The interest rate levied on PRGF and ESF loans is only 0.5 percent, and loans are to be repaid over a period of 5½-10 years.

Stand-By Arrangements (SBA). The SBA is designed to help countries address short-term balance of payments problems. Stand-bys have provided the greatest amount of IMF resources. The length of a SBA is typically 12-24 months, and repayment is normally expected within 2¼-4 years. Surcharges apply to high access levels.

Extended Fund Facility (EFF). This facility was established in 1974 to help countries address longer-term balance of payments problems requiring fundamental economic reforms. Arrangements under the EFF are thus longer-usually 3 years. Repayment is normally expected within 4½-7 years. Surcharges apply to high levels of access.

Supplemental Reserve Facility (SRF). This facility was introduced in 1997 to meet a need for very short-term financing on a large scale. The motivation for the SRF was the sudden loss of market confidence experienced by emerging market economies in the 1990s, which led to massive outflows of capital and required financing on a much larger scale than the IMF had previously provided. Countries are expected to repay loans within 1-1½ years. All SRF loans carry a substantial surcharge of 3-5 percentage points.

Compensatory Financing Facility (CFF). The CFF was established in 1963 to assist countries experiencing either a sudden shortfall in export earnings or an increase in the cost of cereal imports, often caused by fluctuating world commodity prices. Financial terms are similar to those applying to the SBA, except that CFF loans carry no surcharge.

Emergency assistance. The IMF provides emergency assistance to countries that have experienced a natural disaster or are emerging from conflict. Emergency loans are subject to the basic rate of charge, although interest subsidies are available for PRGF-eligible countries, subject to availability. Loans must be repaid within 3¼-5 years.