IMF approves $3.6bn funding package for low-income countries

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

The multilateral institution said the fund is normally distributed among member nations through a process called ‘general allocation,’ approved by the IMF’s governors. According to the organisation, one SDR equals $1.33.

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

The lender said the reforms were on its concessional lending facilities and an associated funding strategy to preserve its ability to provide adequate support to low-income countries (LICs) over the long term.

The SDR (special drawing rights) is an international reserve asset, created by the IMF to supplement member countries’ official reserves.

It said support to low-income members in response to the COVID-19 pandemic and subsequent major shocks was significantly scaled up.

“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 said.

The lender said after a successful bilateral fundraising, its members reached a consensus on a framework to deploy internal resources to facilitate the generation of 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 Washington-based organisation stated that 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.

“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,” it said.

The IMF stated that the access norm will be set at 145 percent of quota to help anchor the average size of future arrangements and the overall lending volume. At the same time, 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,” IMF said.