Far-reaching overhaul of IMF’s facilities for low-income countries tailors support more closely to country circumstances (photo: E. Jason Wambsgans/Chicago Tribune)
HELP FOR LOW-INCOME COUNTRIES
The measures, effective January 7, boost lending resources, raise borrowing limits, eliminate interest payments for two years, and offer more flexible terms tailored to country circumstances.
The package was announced in July 2009, when the IMF’s Executive Board approved the new lending facilities. Activation of the measures was conditioned on consent by lenders and subsidy contributors to the financing mechanisms supporting the new facilities. This process was completed January 7.
An IMF report on the implications of the global financial crisis for low-income countries had warned in March 2009 that the global crisis has hit poor countries especially hard, posing serious threats to their hard-won gains in boosting economic growth and creating a need for additional foreign financing to mitigate the impact of the crisis.
Also in 2009, at an IMF-convened conference in Dar es Salaam of government, business, civil society, and opinion leaders to address these issues, the IMF committed to increase its support for Africa. It pledged more financing, greater flexibility, enhanced policy dialogue, and a further strengthening of Africa’s voice in the Fund.
Doubled assistance
As part of its response, the IMF has already more than doubled its financial assistance to low-income countries. New IMF concessional lending commitments to low-income countries in 2009 reached $3.8 billion, compared with the historical average of $1 billion a year.
The new measures represent a significant additional effort in the coming years. The IMF support package includes
• Mobilization of additional resources, including from sales of an agreed amount of IMF gold, to boost the Fund’s concessional lending capacity to up to $17 billion through 2014, including up to $8 billion in the first two years. This exceeds the call by the Group of Twenty industrial and emerging market economies for $6 billion in new lending over two to three years.
• Interest relief, with zero payments on outstanding IMF concessional loans through end-2011 to help low-income countries cope with the global crisis.
• Permanently higher concessionality of Fund financial support—with annual interest rates regularly reviewed so as to preserve a higher level of concessionality.
• Doubling of average loan access limits for low-income countries.
• A new set of financial instruments tailored to the diverse needs of low-income countries and better suited to mitigate the global crisis impact:
1. An Extended Credit Facility to provide flexible medium-term support;
2. A Standby Credit Facility to address short-term and precautionary needs; and
3. A Rapid Credit Facility, offering emergency support with limited conditionality.
Activation of the new lending windows means that existing arrangements under the Poverty Reduction and Growth Facility will automatically be converted into Extended Credit Facility arrangements. Existing arrangements under the Exogenous Shocks Facility, however, will remain in effect until their expiration or cancellation. The Fund will now be able to provide more flexible assistance to countries experiencing shocks or other balance of payments needs under the three new facilities.
