The FINANCIAL -- On July 20, 2018, the Executive Board of the International Monetary Fund (IMF) discussed a staff evaluation of the Fund’s facilities for low-income countries (LICs).
The current toolkit of Fund facilities for LICs, introduced in 2009, comprises: the Extended Credit Facility (ECF), aimed at helping countries tackle protracted balance of payments problems; the Standby Credit Facility (SCF), aimed at helping countries tackle short-term balance of payments problems or to put in place precautionary financing to respond to unexpected shocks; the Rapid Credit Facility (RCF), which provides emergency finance to countries hit by adverse exogenous shocks (including natural disasters) and financing to countries not yet in a position to enter into a Fund-supported arrangement (such as the ECF); the Policy Support Instrument (PSI), which provides countries with a means of signaling strong economic policies along with a framework for provision of IMF policy advice and technical assistance.
Financial support under these facilities is provided on concessional terms, with interest rates currently at zero percent. Resources to provide concessional loans are secured through lending agreements at market interest rates between member countries and the Poverty Reduction and Growth Trust (PRGT) that are subsequently on-lent to eligible LICs under the various concessional windows; the subsidies needed to provide low (zero) interest rates come from the PRGT, which is administered by the IMF and operates on a self-sustaining basis.
Given the limited amount of subsidy resources, access to concessional lending is subject to annual and cumulative limits. These limits were doubled (in SDR terms) as part of the overhaul of facilities in 2009; they were increased by a further 50 percent in 2015. The limits constrain LICs’ access to resources on concessional terms; LICs can also borrow on non-concessional terms from the Fund’s General Resources Account (GRA), subject to the same conditions as all other Fund member countries.
The macroeconomic challenges of LICs have evolved since the last review of the LIC facilities was completed in 2013. Adverse commodity price shocks and overly loose fiscal policies have contributed to rising debt levels and financing needs in many countries, while many countries, especially smaller ones, are increasingly vulnerable to large natural disasters. At the same time, many LICs less dependent on commodity exports have enjoyed robust growth in recent years, with contained vulnerabilities and only episodic need for Fund financing.
This review examines whether the basic structure of LIC facilities remains broadly appropriate to meet members’ evolving needs; looks at the case for increasing access limits and modifying financing terms; and evaluates the case for specific adjustments to the facilities to ensure they appropriately address the financing needs of LICs.
This review is taking a two-step approach. The first step, completed with the Board’s discussion on July 20th, includes both an evaluation of the experience with use of the concessional facilities and an examination of options for modifying the existing facilities. Based on today’s assessment by the Executive Board, staff will prepare specific proposals for Board discussion and approval in early-2019. Work on the LIC facilities review is aligned with the ongoing Review of Conditionality and Design of Fund-Supported Programs.