IMF Support for Low-Income Countries
The IMF has upgraded its support for low-income countries, reflecting the
changing nature of economic conditions in these countries and their increased
vulnerabilities due to the effects of the global economic crisis. It has overhauled
its lending instruments, especially to address more directly countries’ needs for
short-term and emergency support. It will also more than double the resources
available to low-income countries to up to $17 billion through 2014. Zero interest
will be charged on all concessional lending through 2011 and concessionality will
be reviewed every two years thereafter.
Signs of success
The IMF’s support for low-income countries needed an upgrade as economic conditions
improved in these countries, and as they became more open and integrated into the global
economy.
Many have made great strides toward macroeconomic stability. In the 1990s, the vast
majority of low-income countries faced long-standing economic problems that required
radical, long-term policy changes often accompanied by debt relief or cancellation. Now,
however, many of these economies are becoming more open and integrated into the global
economy. Many low-income countries (LICs) are joining international capital markets,
entering markets for goods and services, attracting foreign investment, nurturing their own
private financial sectors, and benefiting from money sent home by citizens working abroad.
But with this greater international openness and integration comes greater vulnerability and
exposure to the ups and downs of the global economy. This was highlighted by the impact
that sudden jumps in world food and fuel prices had on LICs in 2007 and 2008. Spillover
from the global financial crisis soon followed. It was apparent that the new generation of
more stable but more vulnerable low-income countries needed a new generation of IMF loan
facilities to support them.
Changes in lending instruments
To make its financial support more flexible and tailored to the diversity of low-income
countries, the IMF has established a new Poverty Reduction and Growth Trust, which has
three new lending windows, all under highly concessional terms. The new windows, which
became effective in January2010, are the following:
The Extended Credit Facility (ECF) replaces the Poverty Reduction and Growth Facility
(PRGF). The ECF
Provides sustained engagement over the medium to long term, in case of medium-
term balance of payments needs;
Offers more flexibility than before on program extensions, the timing of structural
reforms, and formal poverty reduction strategy document requirements.
External Relations Department Washington, D.C. 20431 Telephone 202-623-7300 Fax 202-623-6278
Factsheet URL: http://www.imf.org/external/np/exr/facts/poor.htm
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The Standby Credit Facility (SCF), which supersedes the Exogenous Shocks Facility’s High
Access Component, is similar to the Stand-By Arrangement for middle-income countries.
The SCF
Provides flexible support to low-income countries with short-term financing and
adjustment needs caused by domestic or external shocks, or policy slippages;
Targets countries that do not face protracted balance of payments problems but may
need help from time to time
Can also be used on a precautionary basis to provide insurance.
The Rapid Credit Facility (RCF), which
Provides rapid financial support in a single, up-front payout for low-income countries
facing urgent financing needs, and offers successive drawings for countries in post-
conflict or other fragile situations;
Provides flexible assistance without program-based conditionality when use of the
other two facilities is either not necessary (limited nature of need) or not possible
(institutional or capacity constraints).
All these facilities allow for significantly higher access to financing and offer more
concessional terms than previously. Low-income countries will receive exceptional
forgiveness through end-2011 on all interest payments due to the IMF under its
concessional lending instruments. Thereafter, concessionality will be reviewed every two
years.
For policy advice and signaling to donors, countries can request non-financial assistance
under the existing Policy Support Instrument (PSI), which
Supports low-income countries that have secured macroeconomic stability and thus
do not need IMF financial assistance
Can provide accelerated access to the new SCF in case of subsequent financial
needs.
Increased IMF financial support for low-income countries has come at a time when these
countries needed to respond to the global crisis. Changes in the design of the agreed policy
packages—called programs—that accompany IMF loans allowed for countercyclical fiscal
policies, including increased fiscal spending. Additional changes to program design include:
Strengthening the focus on supporting poverty alleviation and growth,
Protecting public spending on social and other priority areas, even as economic
downswings cut revenues
Focusing loan conditions on critical areas, such as transparent management of
public resources.
More money
In response to the increasing financial needs of low-income countries during the global
financial crisis, IMF concessional lending increased significantly from US$1.2 billion in 2008
to US$3.8 billion, and US$1.8 billion in 2009 and 2010, respectively. The IMF will also more
than double the concessional resources available to low-income countries up to $17 billion
through 2014.
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In addition, more than $18 billion of the $250 billion allocation of IMF Special Drawing Rights
(SDRs) went to to low-income countries. These countries can benefit by either counting the
SDRs as extra assets in their reserves, or selling their SDRs for hard currency to meet
balance of payments needs.
The IMF also recently established a new Post-Catastrophe Debt Relief Trust (PCDR), which
allows the IMF to join international debt relief efforts for very poor countries that are hit by
the most catastrophic of natural disasters. In July 2010, this allowed the IMF to eliminate
Haiti’s entire outstanding debt to the IMF following the devastating earthquake.
THIS INFORMATION IS CURRENT AS OF SEPTEMBER 2011