Press Release No. 24/389

The IMF Approves Policy Reforms and Funding Package to Support Low Income Countries in a Sustainable Manner

October 21, 2024

• The reforms approved by the IMF’s Executive Board aim to bolster the Fund’s capacity to support Low-Income Countries (LICs) in addressing their balance of payment needs, while restoring the self-sustainability of the Poverty Reduction and Growth Trust (PRGT).
• The approved policy reforms include: a long-term self-sustained annual lending envelope calibrated at SDR 2.7 billion (about $3.6 billion), more than twice the pre-Covid-19 average. To this end, the membership agreed on a new framework to distribute IMF General Resources to facilitate generation of SDR 5.9 billion (about $8 billion) in additional PRGT subsidy resources.
• The Executive Board also approved reforms to help tailor IMF support to country-specific needs, recognizing the increasing economic heterogeneity of LICs. This includes a new interest rate mechanism that maintains interest-free lending to the poorest countries, while ensuring a sufficient degree of concessionality for others. Access policies will allow for flexibility in calibrating Fund support while safeguards will be strengthened and streamlined.

Washington, DC: The Executive Board of the International Monetary Fund (IMF) approved a set of reforms to the Fund’s concessional lending facilities and an associated funding strategy to preserve the Fund’s ability to provide adequate support to Low-Income Countries (LICs) over the long term. These reforms are detailed in the staff paper “2024 Review of the Poverty Reduction and Growth Trust (PRGT) Facilities and Financing—Reform Proposals.”

The IMF 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. 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 LICs 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 access norm will be set at 145 percent of quota to help anchor the average size of future arrangements and the overall lending volume. At the same time, annual and cumulative limits for PRGT normal access will remain at 200 and 600 percent of quota, respectively. This will allow for flexibility in calibrating Fund’s support. Safeguards will be strengthened and streamlined to maintain a robust and efficient risk management framework, in light of high lending volumes and risks.

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, SDR 5.9 billion (about US$ 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 would come on top of additional 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.

Executive Board Assessment[1]

Executive Directors welcomed the opportunity to discuss the 2024 Review of the Poverty Reduction and Growth Trust (PRGT) Facilities and Financing. They emphasized that the Fund, working closely with the World Bank and other partners, has a key role in supporting Low‑Income Countries (LICs), through policy support, capacity development, concessional financing, and catalyzing donor support.

Directors recognized that the exceptionally high demand for concessional financing in recent years, amid sharply higher funding costs, has put PRGT finances under intense strain. Absent reforms, the PRGT self‑sustained lending capacity would decline to about SDR 1 billion a year by 2027, well below expected demand.

Directors stressed the urgency of maintaining adequate financial support to LICs in the years ahead, while restoring the Trust’s self‑sustained lending capacity. They agreed that while lending should decline from recent highs as LICs gradually recover from successive shocks and implement domestic policy reform, demand for PRGT financing will remain significantly above pre‑pandemic levels in a more shock‑prone world.

Directors generally endorsed a long‑term self‑sustained annual PRGT lending envelope of SDR 2.7 billion that would allow the Fund to continue providing adequate support to LICs while being feasible from a funding perspective. They underscored that the Fund’s limited concessional resources should support strong economic policies and catalyze fresh financing from other sources. A few Directors would have preferred a lower envelope. Directors underlined that continued attention to strong program design and reform content, including in areas such as domestic resource mobilization and debt management, will be essential to support the success and impact of PRGT arrangements.

Directors broadly supported the staff’s proposal for a tiered interest rate mechanism, that would apply to all new ECF and SCF arrangements and outright disbursements under the RCF approved beginning on May 1, 2025, to better reflect the increasing economic heterogeneity among LICs. They welcomed the enhanced targeting of scarce PRGT resources on the poorest LICs, for which the interest rate would remain at zero. A few Directors would have seen merit in a small positive charge as a price signal. Higher‑income LICs would be charged a positive, but still concessional, interest rate in proportion to the SDR interest rate, with a higher concessional element for more vulnerable higher‑income LICs with more limited market access. Directors noted that the proposal will contribute to a larger sustainable lending capacity for the PRGT that will benefit borrowers and have limited impact on members’ financial position and debt sustainability. Some Directors would have preferred a greater element of concessionality for higher income LICs, while a few others would have favored maintaining zero interest rates for financing to small developing states or for emergency financing under the RCF. A few other Directors would have preferred a two‑tiered mechanism based solely on income. Directors broadly supported the staff’s proposal that outstanding PRGT credit and new disbursements under existing PRGT arrangements and RCF financing approved through April 30, 2025, would be exempt from the application of the new interest rate mechanism.

Directors supported returning the access norm applicable to ECF and SCF arrangements to 145 percent of quota, on January 1, 2025, in view of LICs’ recovery from the recent extreme shocks as well as their efforts to mobilize more domestic revenue, adjust policies, and rebuild buffers. They broadly supported maintaining the PRGT overall annual and cumulative access limits at 200 and 600 percent of quota, respectively. A few Directors would have preferred a return to previous PRGT access limits. A few Directors stressed that PRGT access limits should be determined independently of GRA access limits.

Directors supported the proposed reform for Strengthened Policy Safeguards, effective from January 1, 2025, which consolidates the current High Access Procedures and Enhanced Safeguards into a strengthened and streamlined framework centered around the access norm with the aim to help mitigate risks without overburdening the Fund's policy framework. 

Directors underscored that success of programs under the PRGT will hinge on ensuring strong design and implementation, including with regard to the size and composition of fiscal adjustments, mobilization of domestic resources, protection of priority areas including social spending and growth‑enhancing public investment, governance, and structural reforms. In this regard, Directors looked forward to the analysis and recommendations of the forthcoming Review of Program Design and Conditionality.

Directors stressed the need to carefully monitor the implementation of the reform package. The annual reviews of PRGT resource adequacy offer a framework to review the trends in PRGT loan demand and resources. In the event that resources fall short, or demand exceeds expectations by a substantial margin for an extended period, Directors concurred that the Executive Board could introduce a range of contingency measures in the context of an ad‑hoc PRGT review. They also welcomed the proposal to have a targeted mid‑term review in three years, including to assess the early experience of PRGT borrowers with the new interest rate mechanism.

Directors endorsed the proposed financing framework aimed at ensuring the PRGT has sufficient self‑sustained capacity to meet demand. They endorsed the proposed five‑year suspension of PRGT administrative expenses reimbursement to the GRA. In the context of the Fund’s historically strong financial position of the GRA, Directors also supported the proposed framework consisting of (i) a Multi‑Year Distribution Plan for a cumulative amount of SDR6.9 billion of GRA net income or reserves to be achieved through annual distribution decisions of specific amounts subject to the financial conditions of the GRA and (ii) the establishment of a new administered account, the Interim Placement Administered Account (IPAA), to which such amounts would be transferred from the GRA and temporarily placed and administered by the Fund pursuant to the terms of the IPAA Instrument, pending sufficient assurances by members for new commitments of PRGT subsidy resources. The principal amounts would become available to members for disposition based on their quota shares once the assurances equivalent to 90 percent of the aggregate amount have been reached. The framework is designed to facilitate generation of urgently needed additional PRGT subsidies, and such framework is understood to be acceptable to all Fund members. They concurred with staff’s projections that such distributions would be expected to help generate an additional SDR 5.9 billion (in 2025 present value terms) in subsidy resources, conditional on members coming forward with assurances that they will provide their share (or equivalent) of the GRA distributions to benefit the PRGT subsidy accounts. Some Directors indicated that their authorities were not in a position to provide assurances at the current juncture. Some Directors stressed the need for contingency planning given possible uncertainties in receiving sufficient assurances from member countries regarding new PRGT subsidy commitments. Many Directors emphasized that relying on GRA distributions should not be viewed as a permanent solution for subsequent PRGT pledges. Directors generally noted that the option of using limited gold sales could be revisited in the medium‑ to longer term. Some Directors highlighted the importance of continued bilateral contributions from high‑income countries. A few Directors called for the recognition of such voluntary financial contributions in the determination of members’ quotas. Directors also supported the further refinement to the PRGT’s investment strategy.

Directors concurred that the PRGT eligibility framework remains broadly adequate and agreed with the associated list of PRGT‑eligible countries. They supported the proposed refinement to the five‑year period and data sources used to assess past market access, which will allow for the inclusion of more recent data where relevant. Directors concurred that this modification, which would be effective immediately, would also have immediate application for the determination of market access under the framework for presumed blending. They also supported the proposal to restore, effective immediately, the assessment of absence of serious short‑term vulnerabilities for all PRGT‑eligible countries before taking decisions on graduation and concurred that this would help better align the PRGT eligibility framework with the current more shock‑prone environment and continue to limit the risks of premature graduation.

Directors broadly supported proposed targeted changes, effective immediately, to other PRGT policies. Directors supported a targeted adjustment to the Policy Safeguards for High Combined Credit Exposure to align its debt sustainability criterion with that under the GRA Exceptional Access (GRA‑EA) policy for LICs that meet the market access criterion under the GRA‑EA policy. They noted that the Independent Evaluation Office (IEO) is currently advancing its evaluation of the EA policy, and the follow‑up work to the IEO recommendations would ensure any evolution of the GRA‑EA policy would be reflected in the PS‑HCC, as appropriate, to maintain consistency across frameworks. Most Directors supported the extension to end‑December 2025 of the current cumulative access limits of the Rapid Credit Facility (RCF). Directors also concurred with the recommendation to conduct a comprehensive review of the policy on Poverty Reduction Strategies in 2025.

Directors agreed with Staff‑proposed automatic adjustment of access limits and other quota‑based thresholds when the 16^th GRQ becomes effective.

Directors emphasized the importance of a sound communication strategy that highlights the objective of securing a self‑sustainable PRGT to support the Fund’s continued ability to provide concessional lending to vulnerable countries, including zero‑interest loans to the poorest countries. Many Directors also underlined the importance of transparent communication about all stages of the financing mechanism, including that commitments from members to contribute their share of the distribution to the PRGT will be requested following the conclusion of this PRGT review.

Finally, Directors agreed that the next general review of the Fund’s facilities for LICs will take place on the standard five‑year cycle.

[1] At the conclusion of the discussion, the Managing Director, as Chair of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.