DUSHANBE, July 30, 2009, Asia-Plus — The IMF, stepping up lending to low-income countries to combat the impact of the global recession, has announced a new framework for loans to the world’s poorest nations, including increased resources, a doubling of borrowing limits, zero interest rates until the end of 2011, and more flexible terms, press release issued by the IMF on July 29 said.
The IMF’s Executive Board approved the package of measures that will sharply increase the loan resources available to low-income countries. The resources—including from the planned sale of IMF gold—are expected to boost the Fund’s concessional lending to up to $17 billion through 2014, including up to $8 billion over the next two years.
In addition, the IMF announced zero interest payments up to the end of 2011 for all concessional loans to low-income members and lower interest rates on a permanent basis thereafter. A new set of lending instruments will underpin this increased support.
The crisis originated in the advanced economies and has had its most visible impact on the emerging market countries. But a third wave of the crisis has threatened the remarkable economic achievements many low-income countries have made over the past decade.
An IMF report on the implications of the global financial crisis for low-income countries had warned in March that the global financial crisis has hit poor countries especially hard, posing serious threats to their hard-won gains in boosting economic growth and creating a need for additional foreign financing to mitigate the impact of the crisis.
As part of the response, the IMF has already more than doubled its financial assistance to low-income countries. New IMF concessional lending commitments to low-income countries through mid-July 2009 reached $2.9 billion compared with $1.5 billion for the whole of 2008.
The new measures represent a significant additional effort in the coming years. The IMF support package includes: mobilization of additional resource including from sales of an agreed amount of IMF gold, to boost the Fund’s concessional lending capacity to up to $17 billion through 2014, including up to $8 billion in the first two years; interest relief, with zero payments on outstanding IMF concessional loans through end-2011 to help low-income countries cope with the crisis; permanent higher concessionality of Fund financial support—with annual interest rates regularly reviewed so as to preserve a higher level of concessionality than previously; doubling of average loan access limits for low-income countries; and new set of financial instruments tailored to the diverse needs of low-income countries and better suited to meet the crisis challenges (an Extended Credit Facility (ECF) to provide flexible medium-term support, a Standby Credit Facility to address short-term and precautionary needs, and a Rapid Credit Facility, offering emergency support with limited conditionality).
In addition, the IMF’s Executive Board recently backed the Managing Director”s proposal for a new general allocation of $250 billion of Special Drawing Rights into the global economy, of which more than $18 billion will help bolster the foreign exchange reserves and relax the financing constraints of low-income countries. If approved by the IMF”s Board of Governors, the proposed SDR allocation would take place at the end of August.
The new lending windows are expected to become effective later this year, when donor countries have given their final consent. At that time, existing concessional arrangements will automatically be converted into ECF arrangements. Existing arrangements under the Exogenous Shocks Facility, however, will remain in effect, and new ones that have already been prepared could still be approved during a three-month window.
