The IMF approves a $3.6bn aid package to help countries with low incomes

A funding package worth $3.6 billion has been accepted by the IMF to help low-income countries all over the world.

The International Monetary Fund (IMF) said that its executive board has agreed to reforms and give low-income countries a cash package worth SDR 2.7 billion, which is about $3.6 billion.

The multilateral organization said that the changes are mostly about its flexible loan programs and a funding plan that is meant to make sure that low-income countries (LICs) have enough long-term support.

Special drawing rights (SDRs) are assets that are held in foreign reserves. They were created by the foreign Monetary Fund (IMF) to help member countries’ official reserves. Usually, they are given to member countries through a process called “general allocation,” which has been accepted by the IMF’s governors.

The IMF said in a statement on Monday that the changes are explained in the staff paper called “2024 Review of the Poverty Reduction and Growth Trust (PRGT) Facilities and Financing—Reform Proposals.”

The IMF said that help for members with low incomes has been greatly increased in reaction to the COVID-19 pandemic and other major shocks that followed.

“The annual lending commitments have gone up from about SDR 1.2 billion in the 2000s to an average of SDR 5.5 billion since 2020.” “Since the start of the pandemic, outstanding PRGT credit has tripled, and funding costs at the SDR interest rate have gone up sharply,” the statement says.

It was also said by the IMF that the PRGT is short on funds and that its ability to give money on its own could drop to about SDR 1 billion a year by 2027 if reforms are not followed.

“As a result, the PRGT is severely lacking in funds; its ability to lend money on its own is expected to drop to approximately SDR 1 billion per year by 2027, which is significantly less than what is expected to be needed.”

The approved changes aim to keep giving enough money to LICs while making the PRGT self-sufficient again.

They agreed to lend SDR 2.7 billion ($3.6 billion) over a long period of time and also agreed to a set of policy changes and resource mobilization measures that will help them do that, according to a statement.

The IMF says that this funding envelope is more than twice as big as it was before the pandemic. It is meant to make sure that the organization can make good use of its limited concessional resources to keep helping LICs with their balance of payments while also promoting good economic policies and getting more money from other sources.

The review includes changes to policies that represent the fact that LICs’ economies are becoming more diverse.

“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 give the Fund more freedom to tailor its help.” 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.

After successful efforts to raise money from both sides, IMF members agreed on a plan to use internal resources to create PRGT funding resources.

In particular, the statement says that a plan to share GRA net income and/or assets over the next five years should bring in SDR 5.9 billion, which is about US$8 billion in present value terms for the year 2025.

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.