IMF approves $3.6 billion long-term lending support for low-income countries

The Executive Board of the International Monetary Fund (IMF) has approved a set of reforms to the Fund’s concessional lending facilities and a strategy to preserve the Fund’s ability to provide adequate support to Low-Income Countries (LICs) over the long term.

A statement by the IMF Monday said these reforms are detailed in the staff paper “2024 Review of the Poverty Reduction and Growth Trust (PRGT) Facilities and Financing—Reform Proposals.”

The fund said it 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,” the statement said.

“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 low-income countries 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.”

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, the fund said 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.

Board Assessment

The IMF said its executive directors welcomed the opportunity to discuss the 2024 Review of the Poverty Reduction and Growth Trust (PRGT) Facilities and Financing.

They emphasised 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 also organised that the exceptionally high demand for concessional financing in recent years, amid sharply higher funding costs, has put PRGT finances under intense strain.

Without reforms, the statement said, the PRGT self‑sustained lending capacity would decline to about SDR 1 billion a year by 2027, well below expected demand.

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