IMF Approves $3.6bn Aid Package To Support Low-Income Countries

The International Monetary Fund (IMF) has announced that its executive board has approved reforms and a funding package of SDR 2.7 billion (approximately $3.6 billion) for low-income countries.

The multilateral organisation stated that the reforms focus on its concessional lending facilities and a related funding strategy designed to ensure adequate long-term support for low-income countries (LICs).

Special drawing rights (SDRs) are international reserve assets created by the IMF to supplement the official reserves of member countries. Typically, they are distributed among member nations through a process called ‘general allocation,’ approved by the IMF’s governors.

In a statement issued on Monday, the IMF detailed that the reforms are outlined in the staff paper titled “2024 Review of the Poverty Reduction and Growth Trust (PRGT) Facilities and Financing—Reform Proposals.”

The IMF noted that support for low-income members in response to the COVID-19 pandemic and subsequent major shocks has been significantly increased.

“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,” the statement reads.

The IMF also pointed out that the PRGT faces a significant funding shortfall, predicting that its self-sustained lending capacity could decline to about SDR 1 billion annually by 2027 if reforms are not implemented.

“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 approved reforms aim to maintain adequate financial support for LICs while restoring the PRGT’s self-sustainability.

“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 mobilisation to support that lending capacity,” the statement said.

According to the IMF, this funding envelope is more than double the pre-pandemic capacity and is designed to ensure that the organisation can effectively use its limited concessional resources to continue providing essential balance of payments support to LICs while promoting sound economic policies and encouraging new financing from other sources.

The review includes policy changes reflecting the increasing economic diversity 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 IMF stated.

Additionally, the access norm will be set at 145 percent of quota to help establish the average size of future arrangements and overall lending volume, while 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,” the organisation added.

Following a successful bilateral fundraising effort, IMF members reached a consensus on a framework to utilise internal resources to generate 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,” the statement further reads.

This initiative will supplement 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,” the IMF noted.

Faridah Abdulkadiri

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