IMF board approves big lending increment for poorest nations

The International Monetary Fund on Thursday said it would revamp its concessional lending programmes to better support low-income countries during the COVID-19 pandemic and recovery, and raised the prospect of limited sales of IMF gold to boost its lending capability.

The IMF said its executive board last week backed reforms that include raising the access limits for concessional financing for low-income countries by 45%, eliminating access limits for the poorest countries with eligible programmes and maintaining zero-percent interest rates on such loans.

The changes are needed given an eightfold increase in IMF lending to low-income countries to $13.2 billion in 2020, and signs that demand for concessional financing will remain high for several years, the IMF said.

“The two-stage funding strategy that was approved by the IMF Board will secure the resources that we need to really get through this pandemic and its immediate aftermath,” said Christian Mumssen, deputy director of the IMF’s Financial Department, told reporters.

To boost the lending capacity of its Poverty Reduction and Growth Trust, the IMF said it would seek an additional $18 billion in coming years from member countries, on top of some $24 billion already raised since the start of the crisis, plus $4 billion in subsidies to support zero-percent interest rates.

Richer member countries could channel their existing and new Special Drawing Rights emergency reserves to raise the funds, the IMF said, adding that the expected approval of a $650 billion increase in the IMF’s SDR allocation this August could help facilitate the fund-raising process.

The changes are part of a two-stage plan that calls for finding a “lasting solution” to the IMF’s concessional financing model in 2024-2025, including through a possible “limited sale” of the IMF’s gold reserves, according to an IMF staff paper.

In a news release, the IMF said its executive board recognised that the push for additional funding from members was “substantial,” but underscored the important role the PRGT had played in helping low-income countries respond to the pandemic.

It said many directors recommended an early exploration of all financing options, including mobilizing internal IMF resources and exploring gold sales ahead of the second stage.

However a few directors did not support that option, citing the complexity and length of time needed to carry out such sales, as well as “possible impacts on the strength of the Fund’s balance sheet.”


Kristalina Georgieva. File

IMF Managing Director Kristalina Georgieva said on Wednesday that the International Monetary Fund is estimating this month that global growth for 2021 will be about 6%, the same as forecast in April, but with some countries growing faster and others more slowly.

Georgieva, speaking at an online event sponsored by the Peterson Institute for International Economics, said that economic recovery will be held back unless the pace of COVID-19 vaccination picks up, adding that a goal of ending the pandemic by the end of 2022 will not be reached at the current pace. The IMF projected in April that 2021 global growth would hit 6%, a rate unseen since the 1970s, as vaccine availability improves and economies reopen with the help of unprecedented fiscal stimulus, particularly in the United States.

But Georgieva said the relative lack of vaccine access in developing countries and the rapid spread of the COVID-19 Delta variant was threatening to slow the recovery’s momentum.

The IMF is scheduled to release its next World Economic Outlook forecast update on July 27, but Georgieva said the IMF’s projected global growth rate for this year would remain at 6%.

“It is 6% in July, but between April and July, the composition of this 6% has changed,” Georgieva said in the PIIE session with former European Union trade commissioner Cecilia Malmstrom.

“Some countries are now projected to grow faster, some countries are now projected to grow slower. What is the difference? It is primarily the speed and effectiveness of vaccinations and availability of fiscal space to act,” Georgieva added.

The International Monetary Fund’s No. 2 official recently called on countries to pivot from saving their economies from collapse to reviving growth-oriented policy reforms to boost their recovery prospects and make them more sustainable.

IMF First Deputy Managing Director Geoffrey Okamoto said in a blog posting on the IMF website that the COVID-19 pandemic delayed and reversed some pro-growth reforms and restoring these can help make up for output lost during the pandemic.

Reforms that allow for faster restructurings and resolution of unviable businesses and labor policies to help retrain workers and line them up with job openings can help shift workers and capital to more promising, dynamic parts of the economy, Okamoto said.

Improved competition policy frameworks such as those being debated in Europe and the United States can reduce the concentration of market power among a few firms and create more dynamic competition and innovation.