3. Financial Assistance for Low-Income Countries
- International Monetary Fund. Finance Dept.
- Published Date:
- April 2018
The IMF’s financial assistance for low-income countries is composed of concessional loans and debt relief.
Concessional lending began in the 1970s and has since expanded. In July 2009, the IMF’s Executive Board approved a comprehensive reform of the IMF’s concessional facilities. Such assistance is now provided through the facilities of the Poverty Reduction and Growth Trust (PRGT), which assists eligible countries in achieving and maintaining a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth.
Debt relief is currently supported under two initiatives:
The Heavily Indebted Poor Countries (HIPC) Initiative helps eligible countries achieve a sustainable external debt position.
The Catastrophe Containment and Relief (CCR) Trust allows the IMF to provide debt relief to eligible poor countries hit by catastrophic natural disasters or by epidemics with international spillover potential.
Debt relief was previously also provided under the Multilateral Debt Relief Initiative (MDRI), which was intended to complement the HIPC Initiative by providing additional resources to help eligible countries achieve the United Nations Millennium Development Goals. The IMF Executive Board adopted the MDRI in November 2005, and it became effective on January 5, 2006. There is no longer any outstanding IMF debt eligible for MDRI debt relief, and the MDRI trust accounts have been unwound.
The IMF’s concessional lending and debt relief operations are based on trusts established by the Fund. The use of trusts permits greater flexibility in differentiating among members and mobilizing resources. It also removes certain credit and liquidity risks from the balance sheet of the General Resources Account (GRA).
Resources for the IMF’s concessional operations are provided through contributions by a broad segment of the membership, as well as by the IMF. These resources are currently administered under the PRGT for concessional lending, and under the PRG-HIPC and CCR Trusts for debt relief. The IMF acts as trustee for all these trusts, mobilizing and managing resources for all the concessional operations.
Section 3.1 provides an overview of concessional financing at the IMF. Section 3.2 describes concessional lending through the PRGT, and Sections 3.3 and 3.4 describe the debt relief initiatives. Section 3.5 explains the financing structure and resources for concessional assistance and debt relief.
3.1 The Evolution of Concessional Lending
The IMF’s concessional assistance to eligible low-income countries began in the mid-1970s and has expanded significantly over time. The initial assistance was financed entirely through profits from the sale of IMF gold and was disbursed with limited conditionality, first through Trust Fund (TF) loans and later through loans from the Structural Adjustment Facility (SAF).1 Since 1987, concessional loans have been financed in large part by bilateral contributions and have been extended through the Enhanced Structural Adjustment Facility (ESAF) Trust and its successors. T e ESAF was renamed the Poverty Reduction and Growth Facility (PRGF) Trust in 1999, the Poverty Reduction and Growth Facility and Exogenous Shocks Facility (PRGF-ESF) Trust in 2006, and, since January 2010, the Poverty Reduction and Growth Trust (PRGT) (Box 3.1).
A sweeping reform of concessional assistance in 2009 (see Section 3.2 and Table 3.1) established two new facilities—the Standby Credit Facility (SCF) for short-term balance of payments needs and the Rapid Credit Facility (RCF) to provide low-access financing for urgent balance of payments needs—while continuing to address protracted balance of payments needs through the Extended Credit Facility (ECF). The aim of the reform was to provide low-income countries more flexible and tailored support to meet their diverse needs, in light of their heightened exposure to global volatility. Access policies were revised (and access levels doubled), and a new interest rate mechanism was introduced to increase concessionality. In addition, temporary interest relief on all concessional credit was approved. Disbursements of concessional loans and GRA resources to low-income countries peaked during 2008–09, as a result of the food and fuel crises and the global financial crisis (Figure 3.1).
|Extended Credit Facility (ECF)||Standby Credit Facility (SCF)||Rapid Credit Facility (RCF)|
|Objective||Help low-income countries achieve and maintain a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth|
|Purpose||Address protracted balance of payments problems||Resolve short-term balance of payments needs||Low-access financing to meet urgent balance of payments needs|
|Eligibility||Countries eligible under the Poverty Reduction and Growth Trust (PRGT)|
|Qualification||Protracted balance of payments problem; actual financing need over the course of the arrangement, though not necessarily when lending is approved or disbursed||Potential (precautionary use) or actual short-term balance of payments need at the time of approval; actual need required for each disbursement||Urgent balance of payments need when upper-credit-tranche (UCT) program is either not feasible or not needed1|
|Poverty Reduction and Growth Strategy||IMF-supported program should be aligned with country-owned poverty reduction and growth objectives and should aim to support policies that safeguard social and other priority spending|
|Submission of Poverty Reduction Strategy (PRS) document||Submission of PRS document not required; if financing need persists, SCF user would request an ECF arrangement with associated PRS documentation requirements||Submission of PRS document not required|
|Conditionality||UCT; flexibility on adjustment path and timing||UCT; aim to resolve balance of payments need in the short term||No UCT and no conditionality based on ex post review; track record used to qualify for repeat use (except under the shocks window and the natural disasters window)|
|Access Policies||Annual limit of 75% of quota; cumulative limit (net of scheduled repayments) of 225% of quota. Limits are based on all outstanding PRGT credit. Exceptional access: annual limit of 100% of quota; cumulative limit (net of scheduled repayments) of 300% of quota|
|Norms and sublimits2|
|The access norm is 90% of quota per 3-year ECF arrangement for countries with total outstanding concessional IMF credit under all facilities of less than 75% of quota, and is 56.25% of quota per 3-year arrangement for countries with outstanding concessional credit of between 75% and 150% of quota.||The access norm is 90% of quota per 18-month SCF arrangement for countries with total outstanding concessional IMF credit under all facilities of less than 75% of quota, and is 56.25% of quota per 18-month arrangement for countries with outstanding concessional credit of between 75% and 150% of quota.||There is no norm for RCF access|
Sublimits (given lack of UCT conditionality): total stock of RCF credit outstanding at any point in time cannot exceed 75% of quota (net of scheduled repayments). The access limit under the RCF over any 12-month period is set at 18.75% of quota, under the “shocks window” at 37.5% of quota, and under the “large natural disasters window” at 60% of quota. Purchases under the RFI made after July 1, 2015 count toward the applicable annual and cumulative RCF limits.
|Financing Terms3||Interest rate: Currently zero|
Repayment terms: 5½–10 years
|Interest rate: Currently zero.|
Repayment terms: 4–8 years Availability fee: 0.15% on available but undrawn amounts under precautionary arrangement
|Interest rate: Zero|
Repayment terms: 5½–10 years
|Blending Requirements with GRA financing||Based on income per capita and market access; linked to debt vulnerability|
|Precautionary Use||No||Yes, annual access at approval is limited to 56.25% of quota while average annual access at approval cannot exceed 37.5% of quota.||No|
|Length and Repeated Use||3–4 years (extendable to 5); can be used repeatedly||12–24 months; use limited to 2½ of any 5 years4||Outright disbursements; repeated use possible subject to access limits and other requirements|
|Concurrent Use||General Resources Account (Extended Fund Facility/Stand-By Arrangement)||General Resources Account (Extended Fund Facility/Stand-By Arrangement) and Policy Support Instrument||General Resources Account (Rapid Financing Instrument and Policy Support Instrument); credit under the RFI counts towards the RCF limits|Figure 3.1PRGT-Eligible Countries: GRA Purchases and Concessional Loan Disbursements, 1987–2017
Source: Finance Department, International Monetary Fund.
Note: GRA = General Resources Account; PRGT = Poverty Reduction and Growth Trust.
1 Includes lending under the Enhanced Structural Adjustment Facility (ESAF), its successor, the Poverty Reduction and Growth Facility (PRGF), and currently under the Extended, Standby, and Rapid Credit Facilities.
3.2 Poverty Reduction and Growth Trust
In July 2009, the IMF’s Executive Board approved a comprehensive reform of the IMF’s concessional facilities. The objective was to increase the flexibility of IMF support to low-income countries and better tailor assistance to these countries’ diverse needs, particularly given their heightened exposure to global volatility. The Poverty Reduction and Growth Facility and Exogenous Shocks Facility (PRGF-ESF) Trust was renamed the Poverty Reduction and Growth Trust (PGRT) with the entry into force of the 2009 reforms (effective January 7, 2010). These are the key aspects of the current IMF architecture for low-income countries:
Figure 3.2Outstanding Concessional Credit by Facility, 1977–2017
Source: Finance Department, International Monetary Fund.
Note: The sharp decrease in credit outstanding in 2006 reflects the impact of the Multilateral Debt Relief Initiative (MDRI).
A more effective structure for low-income country facilities: All concessional lending is consolidated within the PRGT. Three concessional lending facilities for low-income countries are available (Table 3.1) a long with one nonfinancial instrument:
The Extended Credit Facility (ECF) is the IMF’s main tool for medium-term financing to low-income countries. ECF arrangements support programs that enable members with protracted balance of payments problems to make significant progress toward stable and sustainable macroeconomic positions consistent with strong and durable poverty reduction and growth.
The Standby Credit Facility (SCF) provides financing to low-income countries with short-term balance of payments needs, similarly to Stand-By Arrangements (SBAs). SCF arrangements support programs that enable members with actual or potential short-term balance of payments needs to achieve, maintain, or restore stable and sustainable macro-economic positions consistent with strong and durable poverty reduction and growth.
The Rapid Credit Facility (RCF) provides rapid, low-access financing with limited conditionality when an upper-credit-tranche (UCT) program with adjustment is either not needed—for instance due to the transitory and limited nature of the need—or not feasible; for instance, if policy capacity is constrained.2 Examples of such financing needs include those caused by exogenous shocks, natural disasters, and emergence from conflict or other episodes of fragility or instability. RCF disbursements support members facing urgent balance of payments needs to help them achieve or restore stable and sustainable macroeconomic positions consistent with strong and durable poverty reduction and growth.
The Policy Support Instrument (PSI) is the IMF’s nonfinancial policy support tool for countries that may not need or want IMF financial assistance but seek to consolidate their economic performance with IMF monitoring and support and seek explicit Executive Board endorsement of their program and policies. A PSI can also facilitate access to the SCF and RCF (Box 3.4).
Enhanced focus on poverty reduction and growth: All PRGT facilities place a strong emphasis on poverty alleviation and growth rooted in country-owned poverty reduction strategies. Formal requirements for submission to the IMF of Poverty Reduction Strategy (PRS) documents exist for ECF- and PSI-supported programs. Furthermore, under all PRGT facilities social and other priority spending should be safeguarded, and whenever appropriate increased, and this should be monitored through explicit targets wherever possible.
Lower interest rates: A lower interest rate structure was established for the three concessional facilities, and the interest rates are reviewed regularly to preserve a higher level of concessionality than in the past. In addition, low-income countries received exceptional relief on all outstanding concessional loan interest payments due to the IMF, initially through the end of 2011, and subsequently extended through the end of 2016 (Box 3.5). In July 2015, the Executive Board set the interest rate on the RCF to zero, thus increasing the concessionality of fast-disbursing financial assistance to countries facing urgent balance of payments needs that may be caused by fragile situations, conflict, or natural disasters.3 In 2016, the Executive Board adopted a modification of the interest rate structure for concessional loans to preserve the concessionality of PRGT interest rates during periods of prolonged very low global interest rates. The application of the revised mechanism set interest rates on the ECF and SCF to zero until the end of 2018 and ensures that zero rates on such loans continue for as long as (and whenever) global interest rates are low.4
3.2.1 PRGT Terms
Availability: Assistance under the ECF arrangement is available for an initial 3- or 4-year term. An ECF arrangement may be extended for an overall maximum duration of five years. Assistance under an SCF arrangement is available for 12 to 24 months. Because the SCF is intended to address episodic short-term needs, its use is normally limited to 2½ of any 5 years, assessed on a rolling basis (SCFs treated as precautionary do not count toward the time limits). Assistance under the RCF is provided in the form of one-time disbursements or repeated disbursements over a limited period in case of recurring or ongoing financing needs, subject to RCF-specific access limits (see below) and other requirements on repeated use.5
Financial: Repayments of ECF and RCF credits are made semiannually in equal installments, subject to a 5½-year grace period and 10-year maturity. SCF credit payments are made semiannually in equal installments, subject to a 4-year grace period and an 8-year maturity. Interest is paid semiannually and is subject to regular Executive Board reviews that take world interest rates into account, except for the RCF, which carries zero interest (Box 3.5). Precautionary use of the SCF carries a small availability fee of 0.15 percent a year, payable on the full amount of disbursements available during each six-month period under an SCF arrangement, or any shorter period that remains under the SCF arrangement, to the extent that such disbursements are not drawn by the member. The ECF and RCF cannot be used on a precautionary basis.
Conditionality: ECF and SCF arrangements are subject to UCT standard conditionality (see Table 3.1)—as noted, this is a set of program-related conditions intended to ensure that IMF resources support the program’s objectives, with adequate safe-guards for the IMF’s resources. Conditionality is established only on the basis of those variables or measures that are reasonably within the member’s direct or indirect control and that are generally, either (1) of critical importance for achieving the goals of the member’s program or for monitoring program implementation or (2) necessary for the implementation of specific provisions of the Articles of Agreement or policies adopted under them. If a UCT conditionality standard is either not necessary or feasible, an RCF is used.
Access limits and norms: Global annual and cumulative limits apply to each member’s total access under all concessional facilities. Total access to concessional financing should normally not exceed 75 percent of quota a year and 225 percent of quota cumulatively (net of scheduled repayments) across all concessional facilities. However, access above the normal limits can be made available to countries that (1) experience an exceptionally large balance of payments need that cannot be met within the normal limits, (2) have a comparatively strong adjustment program and ability to repay the IMF, (3) do not have sustained past and prospective access to capital markets, and (4) have income at or below the prevailing operational cutoff for assistance from the International Development Association (IDA). Exceptional access above the normal limits is subject to hard caps of 100 percent of quota annually and 300 percent of quota cumulatively (net of scheduled repayments) across all concessional facilities. To help ensure that the RCF does not support continued weak policies or create moral hazard, in addition to the global and cumulative limits under all concessional facilities, access to RCF financing is subject to subceilings of 18.75 percent of quota a year and 75 percent of quota cumulatively (Table 3.2). The annual subceiling is raised to 37.5 percent of quota if the urgent balance of payments need was caused primarily by a sudden exogenous shock and to 60 percent of quota for countries experiencing urgent balance of payments needs arising from large natural disasters.6,7 ECF and SCF disbursements are also subject to access norms, which provide general guidance and represent neither ceilings nor entitlements. Specifically, the access norm is 90 percent of quota when outstanding concessional credit for the member is less than 75 percent of quota and 56.25 percent of quota when outstanding concessional credit is between 75 and 150 percent of quota.8 Access norms do not apply when outstanding concessional credit is above 150 percent of quota. In those cases, access is guided by consideration of the cumulative access limit of 225 percent of quota (or 300 percent of quota in exceptional access cases), expectation of future need for IMF support, and the repayment schedule.
|Facility||Normal Access Limits and Norms||Exceptional Access Limits|
|Extended Credit Facility|
|Annual Access Limit||75% of quota||100% of quota|
|Cumulative Access Limit||225% of quota||300% of quota|
|Norms Per 3-Year Arrangement||90% of quota if outstanding credit is less than 75% of quota; 56.25% of quota if outstanding credit is between 75% and 150% of quota, no norm if outstanding credit exceeds 150% of quota|
|Standby Credit Facility|
|Annual Access Limit1||75% of quota||100% of quota|
|Cumulative Access Limit||225% of quota||300% of quota|
|Norms Per 18-Month Arrangement||90% of quota if outstanding credit is less than 75% of quota; 56.25% of quota if outstanding credit is between 75% and 150% of quota, no norm if outstanding credit exceeds 150% of quota|
|Rapid Credit Facility|
|Annual Access Limit||18.75% of quota (shocks window: 37.5% of quota, large natural disasters window: 60% of quota)|
|Cumulative Access Limit||75% of quota|
Blending: “Blending” of concessional PRGT resources with nonconcessional General Resources Account (GRA) resources is presumed for PRGT-eligible countries whose income per capita is above the prevailing IDA operational cutoff or that have market access and income per capita exceeding 80 percent of the IDA cutoff. There is no presumption of blending for countries at high risk of debt distress or in debt distress as assessed by the most recent low-income country Debt Sustainability Analysis (DSA).9 The blending policy stipulates a 1:2 mix of PRGT and GRA resources, with access to concessional resources capped at the norm applicable to unblended arrangements.10 All access above the applicable PRGT norm must be met from the GRA.
Poverty Reduction Strategy (PRS): All PRGT facilities place a strong emphasis on poverty alleviation and growth rooted in country-owned poverty reduction strategies, and countries seeking any type of IMF financial assistance, including under the SCF and RCF, must indicate how a program will reduce poverty and enhance growth. All programs should aim to support policies that safeguard social and other priority spending, and such spending is tracked through specific program targets. Formal requirements for submission to the IMF of country-owned poverty reduction strategies (PRS documents) exist for IMF support under the ECF and PSI (Box 3.6).11
3.2.2 PRGT Eligibility
Before 2010, PRGT eligibility was determined by the IMF Executive Board primarily on the basis of IDA eligibility. In 2010, a framework was established for updating the PRGT eligibility list, based on transparent and rule-based criteria and a regular review process.12Table 3.3 lists the PRGT- and HIPC-eligible members as of December 31, 2017.13
|1.||Afghanistan*||20. The Gambia*||39.||Mauritania*||58.||Sudan*|
|5.||Burkina Faso*||24. Guinea-Bissau*||43.||Myanmar||62.||Togo*|
|9.||Cabo Verde||28. Kenya||47.||Papua New Guinea||66.||Uzbekistan|
|10.||Central African Republic*||29. Kiribati||48.||Rwanda*||67.||Vanuatu|
|11.||Chad*||30. Kyrgyz Republic||49.||St. Lucia||68.||Yemen|
|12.||Comoros*||31. Lao P.D.R.||50.||St. Vincent and the Grenadines||69.||Zambia*|
|13.||Democratic Republic of the Congo*||32. Lesotho||70.||Zimbabwe|
|14.||Republic of Congo*||34. Madagascar*||52.||São Tomé and Príncipe*|
|15.||Côte d’Ivoire*||35. Malawi*||53.||Senegal*|
|16.||Djibouti||36. Maldives||54.||Sierra Leone*|
|17.||Dominica||37. Mali*||55.||Solomon Islands|
|18.||Eritrea*||38. Marshall Islands||56.||Somalia*|
The eligibility framework comprises differentiated criteria for entry and graduation. In broad terms, countries become eligible if their annual income per capita is below the IDA cutoff for gross national income per capita and they are unable to access international financial markets on a durable and substantial basis. PRGT-eligible countries graduate if they have either persistently high income (significantly exceeding the threshold for entry) or can access international financial markets on a durable and substantial basis, provided they do not face serious short–term vulnerabilities. A member that exceeds the income graduation threshold by 50 percent or more will be graduated from PRGT eligibility without the need for an assessment of serious short-term vulnerabilities.14 The framework has special criteria for entry and graduation for small states and very small states (microstates), which are defined as those states with a population below 1.5 million and below 200,000, respectively. Eligibility reviews take place every two years and the most recent one was in May 2017. As a result, 70 countries are currently eligible for PRGT financing.
3.3 Heavily Indebted Poor Countries Initiative
Debt relief for the most heavily indebted poor countries has been provided through the HIPC Initiative. In 1996, the IMF and the World Bank jointly launched the HIPC Initiative to help relieve an external debt burden that had become unsustainable for a number of low-income countries, mostly in Africa. The HIPC Initiative involves coordinated action by the international financial community, including multilateral institutions, to reduce the external debt burden of these countries to sustainable levels. The HIPC Initiative complements traditional debt relief mechanisms, concessional financing, and the pursuit of sound economic policies designed to place these countries on a sustainable external footing.
The initiative marked a significant advance from traditional debt relief mechanisms. It introduced key innovations in the treatment of low-income countries’ debt, such as a systematic treatment of multilateral debt, the notion of debt sustainability, and a focus on poverty reduction. The initiative was enhanced in 1999 to provide deeper, broader, and faster debt relief to eligible members. The enhancements also aimed to strengthen the links between debt relief and poverty reduction, particularly through social policies (Box 3.7 and Figure 3.3).
Figure 3.3IMF Debt Relief to Low-Income Countries, 1998–2017
Source: Finance Department, International Monetary Fund.
Note: CCRT = Catastrophe Containment and Relief Trust; HIPC = Heavily Indebted Poor Countries; MDRI = Multilateral Debt Relief Initiative; PCDR = Post-Catasptrophe Debt Relief.
3.3.1 HIPC Eligibility and Qualification Criteria
A country is deemed eligible for assistance under the enhanced HIPC Initiative if it meets the income and indebtedness criteria and adopts a program supported by the IMF:
Income criterion: A country is eligible for HIPC if it is eligible to borrow from the IMF’s PRGT and the World Bank’s IDA.
Indebtedness criterion: A country is eligible if its debt bur-den indicators at the end of 2004 and the end of 2010 are above the HIPC Initiative thresholds, after application of traditional debt relief mechanisms (Table 3.4).15
Program requirement: A country must adopt a program supported by the IMF (and IDA) at any time after October 1, 1996.
|Present value of external public debt to exports||150|
|Present value of external public debt to fiscal revenues||250|
|The fiscal revenue threshold applies only if|
|Exports-to-GDP ratio is at least||30|
|Revenue-to-GDP ratio is at least||15|
A HIPC Initiative decision point is reached when the IMF and World Bank formally decide on a country’s qualification for debt relief and the international community commits to reducing the country’s debt to a sustainable level. An eligible country qualifies if
It is eligible to borrow from the World Bank’s IDA and from the IMF’s PRGT.
Its debt burden indicators are above the HIPC Initiative thresholds using the most recent data for the year immediately preceding the decision point and its unsustainable debt burden cannot be addressed through traditional debt relief mechanisms.
It has established a satisfactory track record of strong policy performance under respective IMF- and IDA-supported programs.
It has a satisfactory poverty-reduction strategy in place (in the form of a full Poverty Reduction Strategy Paper (PRSP), an Interim PRSP, a PRSP preparation status report, or a PRSP Annual Progress Report) (Box 3.6).
Once an eligible country has met the objectives set at the decision point, including implementing key structural policy reforms (completion point triggers), it qualifies for the HIPC Initiative completion point—when the country receives the balance of debt relief committed at the decision point. At the completion point, all creditors are expected to provide full and irrevocable debt relief by reducing their claims on the country to the agreed sustainable level in net present value terms.
3.3.2 Provision of Debt Relief
Under the HIPC framework, the IMF and the World Bank determine whether a member qualifies for debt relief—specifically, that it demonstrates the capacity to use the expected assistance prudently by establishing a satisfactory track record under IMF- and IDA-supported programs and has a poverty reduction strategy in place. The IMF and the World Bank also determine the amount of HIPC assistance to be committed at the decision point.
The IMF provides its share of assistance under the HIPC Initiative in the form of grants, which are used to help meet debt-service payments to the IMF. Beginning at the decision point, a qualifying member may receive interim assistance from the IMF of up to 20 percent annually and 60 percent in total (or, in exceptional circumstances, 25 percent and 75 percent, respectively) of the committed amount of HIPC assistance between the decision point and the floating completion point. Interim assistance may be provided in annual installments to an account of the member administered by the IMF. These resources are used for debt-service payments to the IMF as they fall due. The member’s account earns interest on any balance during the interim period. At the completion point, the IMF deposits the remaining amount of undisbursed committed assistance in the member’s account. After the completion point, the IMF delivers the remaining HIPC assistance to the member through a stock-of-debt reduction operation16 (Box 3.8).
The HIPC Initiative is now largely completed. As of December 31, 2017, 36 of 39 countries eligible or potentially eligible for HIPC Initiative assistance had reached their completion points. In total, the IMF has provided debt relief of SDR 2.6 billion under the HIPC Initiative (Table 3.5).
|Decision Point||Completion Point||Amount Committed||Amount Disbursed1|
|Completion point countries (36)||2,421||2,595|
|1 Afghanistan2||July 2007||January 2010||—||—|
|2 Benin||July 2000||March 2003||18||20|
|3 Bolivia||February 2000||June 2001||623||65|
|4 Burkina Faso||July 2000||April 2002||443||46|
|5 Burundi||August 2005||January 2009||19||22|
|6 Cameroon||October 2000||April 2006||29||34|
|7 Central African Republic||September 2007||June 2009||17||18|
|8 Chad||May 2001||April 2015||14||17|
|9 Comoros||July 2010||December 2012||3||3|
|10 Democratic Republic of the Congo||July 2003||July 2010||280||331|
|11 Republic of Congo||March 2006||January 2010||5||6|
|12 Côte d’lvoire||April 2009||June 2012||433||264|
|13 Ethiopia||November 2001||April 2004||45||47|
|14 The Gambia||December 2000||December 2007||2||2|
|15 Ghana||February 2002||July 2004||90||94|
|16 Guinea||December 2000||September 2012||28||35.3|
|17 Guinea-Bissau||December 2000||December 2010||9||9|
|18 Guyana||November 2000||December 2003||573||60|
|19 Haiti||November 2006||June 2009||2||2|
|20 Honduras||June 2000||April 2005||23||26|
|21 Liberia||March 2008||June 2010||441||452|
|22 Madagascar||December 2000||October 2004||14.7||16|
|23 Malawi||December 2000||August 2006||33||37|
|24 Mali||September 2000||March 2003||463||49|
|25 Mauritania||February 2000||June 2002||35||38|
|26 Mozambique||April 2000||September 2001||1073||108|
|27 Nicaragua||December 2000||January 2004||64||71|
|28 Niger||December 2000||April 2004||31||34|
|29 Rwanda||December 2000||April 2005||47||51|
|30 São Tomé and Príncipe||December 2000||March 2007||1||1|
|31 Senegal||June 2000||April 2004||34||38|
|32 Sierra Leone||March 2002||December 2006||100||107|
|33 Tanzania||April 2000||November 2001||89||96|
|34 Togo||November 2008||December 2010||0.2||0.2|
|35 Uganda||February 2000||May 2000||1203||122|
|36 Zambia||December 2000||April 2005||469||508|
|Pre-decision-point countries (1)|
|37 Eritrea||. . .||. . .||. . .||. . .|
|Protracted arrears cases (2)|
|38 Somalia||. . .||. . .||. . .||. . .|
|39 Sudan||. . .||. . .||. . .||. . .|
3.4 Catastrophe Containment and Relief Trust
In February 2015, the IMF transformed the Post-Catastrophe Debt Relief (PCDR) Trust, established in June 2010, to create the Catastrophe Containment and Relief (CCR) Trust. The CCR Trust allows the IMF to assist its poorest members with grants for debt relief when they are hit by the most catastrophic of natural disasters as well as those battling public health disasters with international spillover potential. The purpose of debt relief under the CCR Trust is to free additional resources to meet exceptional balance of payments needs that arise from the need to recover from or contain such catastrophes, complementing fresh donor assistance and the IMF’s concessional financing under the PRGT.
Assistance through the CCR Trust is available to low-income countries eligible for concessional borrowing through the PRGT whose annual income per capita is below the prevailing IDA income threshold.17 CCR support is available through two windows, each with different purposes, qualification criteria, and assistance terms:
(i) A Post-Catastrophe Relief (PCR) window, to provide exceptional assistance in the wake of the most catastrophic natural disasters, specifically those that directly affect at least a third of a country’s population and destroy more than a quarter of its productive capacity or cause damage deemed to exceed 100 percent of GDP. Eligible countries receive debt flow relief to cover all payments falling due on their eligible debt to the PRGT and the General Resources Account from the date of the debt flow relief decision to the second anniversary of the disaster. Early repayment by the CCR Trust of a country’s full stock of eligible debt to the PRGT and the GRA is also available when the disaster and subsequent economic recovery efforts cause substantial and long-lasting balance of payments disruptions that make the resources freed up by debt stock relief critical. Such debt stock relief is conditional on concerted debt relief efforts by the country’s other official creditors, the availability of CCR Trust resources, and an assessment of the country’s implementation of macroeconomic policies in the period preceding the decision to disburse debt relief.
(ii) A Catastrophe Containment (CC) window, to provide assistance in containing a public health disaster that has the capacity to spread rapidly both within and across countries. The support via the CC window is limited to a life-threatening public health disaster that has spread across several areas of the afflicted country, causing significant economic disruption—characterized by at least (a) a cumulative loss of real GDP of 10 percent, or (b) a cumulative loss of revenue and increase in expenditures equivalent to at least 10 percent of GDP—and that could spread or is already spreading to other countries. In addition, to qualify for the support, the afflicted country should put in place appropriate macroeconomic policies to address the balance of payments needs. Eligible low-income countries that are hit by public health disasters as defined above would receive up-front grants to immediately pay off forthcoming debt service to the IMF on eligible debt. The amount of grant support is capped at 20 percent of a country’s quota. Support could be larger in certain specifically defined exceptional cases.18
|Billions of SDRs (End-2000 NPV)|
|Total IMF Financing Requirements||3.0|
|PRGF Subsidy Requirement||1.1|
|Cost of the HIPC Initiative to the IMF||1.9|
|Sources of Financing||3.0|
|Investment Income from Gold Sale Proceeds||1.4|
As of December 31, 2017, four countries had received debt relief under the CCR Trust, or its predecessor, the PCDR Trust. On July 21, 2010, Haiti received SDR 178 million (about $268 million) in debt stock relief, eliminating its entire outstanding debt to the IMF. In February and March 2015, Guinea, Liberia, and Sierra Leone received SDR 68 million (about $100 million) in immediate debt relief to assist them in responding to a severe Ebola epidemic.
3.5 Financing Concessional Assistance and Debt Relief
3.5.1 Financing Structure
As noted, the financing structure for concessional assistance currently comprises three trusts and related accounts and sub-accounts for which the IMF is either a trustee or administrator: the PRG Trust, PRG-HIPC Trust, and CCR Trust. The trusts have several features in common:
SDRs are the unit of account for all operations.
The resources and records of the trusts are kept separate from all other accounts of the IMF.
The IMF, as trustee, has the authority to invest funds temporarily for the benefit of the trust or administered account. Invested funds are divided between short-term deposits and medium-term instruments at the Bank for International Settlements (BIS) and investment portfolios (bonds) managed by external managers (Box 3.12).
3.5.2 Framework for Concessional Lending
22.214.171.124 Poverty Reduction and Growth Trust
The PRGT is composed of the following accounts (Figure 3.4):
Four Loan Accounts, which serve as pass-through for receipt and provision of principal for concessional lending
The Reserve Account, which provides security to lenders and whose investment income will eventually be used to subsidize concessional lending under the self-sustained PRGT (Section 126.96.36.199)
Four Subsidy Accounts that receive and provide resources for subsidizing lending under the PRGT facilities
Figure 3.4Concessional Financing Framework
Source: Finance Department, International Monetary Fund.
Note: ECF = Extended Credit Facility; ESF = Exogenous Shocks Facility; RCF = Rapid Credit Facility; SCF = Standby Credit Facility.
This framework allows for flexible use of concessional resources while meeting donors’ preferences for earmarking their contributions for specific purposes. Figure 3.5 shows the flow of funds between the PRGT accounts and contributors and borrowers. The PRGT accounts serve the following purposes:
General Loan Account (GLA): The GLA receives and disburses loan resources for all PRGT facilities without ear-marking by donors. Loan resources in the GLA are generally drawn only to finance an arrangement under a specific facility after the loan resources in the Loan Account associated with that facility are exhausted.
Special Loan Accounts (SLAs): SLAs accommodate donors’ preferences for earmarking their loans for specific facilities.
Reserve Account: The Reserve Account offers security to lenders to the PRGT. Under the financing model for the self-sustained PRGT, approved in April 2014, which became effective in November 2014, the trustee may decide to use income from the investment of the resources in the Reserve Account for subsidy purposes (Section 3.5.4).
General Subsidy Account (GSA): The GSA receives and provides subsidies for existing and new loans under all facilities of the PRGT. Resources in the GSA are drawn only to subsidize loans under a specific facility after resources in the Special Subsidy Account associated with that facility are exhausted.
Special Subsidy Accounts (SSAs): SSAs accommodate donors’ preferences for earmarking their subsidy contributions for specific facilities. Three separate subsidy accounts exist servicing the ECF, SCF, and RCF, respectively. The ECF Subsidy Account was the “default” account for receipt of previously pledged subsidy resources. (The PRGF and PRGF-ESF Subsidy Accounts were terminated when the 2009 reform of concessional facilities went into effect in January 2010.)
Figure 3.5Flow of Funds in the Poverty Reduction and Growth Trust
Source: Finance Department, International Monetary Fund.
Note: PRGT = Poverty Reduction and Growth Trust; SDA = Special Disbursement Account.
Three separate loan accounts exist for servicing the ECF, SCF, and RCF, respectively.
3.5.3 Resources for Concessional Lending
Bilateral lenders, donors, and the IMF have provided resources for concessional lending. All concessional lending resources are channeled through the loan and subsidy accounts of the PRGT.
188.8.131.52 Loan Resources
Loan agreements to the PRGT have been nonrevolving and subject to a time limit on drawings ever since the current practice of borrowing to finance disbursements was established in the late 1980s. Periodic fundraising rounds are therefore required to obtain the necessary loan resources for onlending to PRGT-eligible members through the PRGT.
As part of the 2009 reform of the IMF’s concessional lending facilities, a major fundraising drive was launched to secure an additional SDR 10.8 billion in loan resources to meet expected loan commitments through 2014.19 In addition, new subsidy resources of SDR 1.5 billion were mobilized from the IMF’s internal resources, and through bilateral contributions (Box 3.13). In April 2014, the IMF Executive Board approved amendments to the PRGT to allow new loan commitments to the PRGT covering the period 2016–20 and allowed staff to seek additional borrowing capacity of up to SDR 11 billion for the loan accounts of the PRGT, with drawdown periods through the end of 2024. In that context, the Executive Board also raised the cumulative limit for PRGT borrowing from SDR 30 billion to SDR 37 billion.20 In January 2018, the Executive Board approved another increase in the PRGT cumulative borrowing limit (to SDR 38 billion) to accommodate the better-than-expected outcome of the 2017–18 loan mobilization round.
Drawings: Loan providers may choose to earmark their loan commitments for the Special Loan Accounts (SLAs) (that is, to fund the ECF, SCF, or RCF) or make them generally available under the General Loan Account (GLA) for all PRGT lending facilities. The aim is to first draw on loan resources available under borrowing agreements entered in prior fundraising rounds, from both the SLA and the GLA, before calling on new commitments that are made under new borrowing agreements. Within the same fundraising round, facility-specific loan agreements are drawn before GLA resources.21 Otherwise, drawings are made over time so as to maintain broad proportionality of these drawings relative to commitments to each loan account.
Maturities: A loan to the PRGT, once drawn, is repaid on a pass-through basis in semiannual installments according to the fixed repayment schedule of the PRGT facility for which the borrowing agreement was drawn when disbursements were made to the borrowing member country.22 Borrowing agreements can provide for shorter notional maturities and these may be extended unilaterally by the IMF, acting as trustee of the PRGT, up to the final maturity of the corresponding PRGT loans. This allows for shorter maturities but also protects the PRGT against maturity mismatches.
Interest rates: Loan resources are generally provided at market-related interest rates by central banks, governments, and official institutions. Pursuant to the framework endorsed by the Executive Board in 2010, currency loans are remunerated at the six-month derived SDR interest rate and paid semiannually, while SDR loans are remunerated at the three-month official SDR interest rate and paid quarterly.23
Transferability and encashment: Claims on the PRGT may be transferred among IMF members, to the central bank or other fiscal agency of a member, or to a prescribed SDR holder. Agreements may contain provisions aimed at further enhancing the liquidity claims on the PRGT, and thus support their treatment as official reserve assets. Lenders may participate in a voluntary encashment regime in which they have the right to seek early repayment of outstanding claims on the PRGT in case of balance of payments needs and to authorize drawings by the trustee to fund early repayment requests by other participating creditors to any of the loan accounts of the PRGT. Early repayment is subject to the availability of resources under borrowing agreements of other participating creditors.24
Note issuance: Lenders also have the option of entering into note purchase agreements, similar to the kind used for General Resources Account borrowing. Under such agreements, drawings are structured as purchases of notes issued by the PRGT. These notes have the same key financial and operational terms as under PRGT loan agreements.
Since 1987, 17 member countries or their agencies have provided loan resources to the PRGT. Table 3.7 displays the cumulative commitments of lenders to the PRGT loan accounts.
|Lender||Loan Commitments||Amount Drawn||Amount Outstanding|
|National Bank of Belgium||1,050.0||700.0||377.97|
|Government of Canada||1,700.0||851.5||137.3|
|Government of China||200.0||200.0||2.2|
|People’s Bank of China||1,600.0||793.6||758.6|
|National Bank of Denmark||600.0||139.5||36.7|
|Central Bank of Egypt||155.6||155.6||17.0|
|French Development Agency||3,570.0||3,570.0||744.1|
|Bank of France||1,328.0||1,284.6||1,228.2|
|KfW Banking Group (Germany)||2,750.0||2,750.0||320.9|
|Bank of Italy||2,580.0||2,106.8||793.7|
|Japan Bank for International Cooperation||5,134.8||5,134.8||73.3|
|Government of Japan||3,600.0||96.8||94.4|
|Bank of Korea||1,092.7||114.36||21.66|
|Bank of the Netherlands||1,450.0||458.4||74.9|
|Bank of Norway||150.0||150.0||—|
|Government of Norway||600.0||300.0||246.43|
|OPEC Fund for International Development1||37.0||37.0||—|
|Saudi Arabian Monetary Agency||500.0||72.1||72.1|
|Saudi Fund for Development||49.5||49.5||—|
|Government of Spain||67.0||67.0||—|
|Bank of Spain||1,500.0||668.2||105.17|
|Swiss National Bank||1,401.7||446.34||80.7|
|Government of the United Kingdom||3,328.0||1,248.5||1,248.5|
184.108.40.206 Subsidy Resources
Subsidy resources are provided by bilateral contributors and the IMF. Bilateral contributions are typically provided through either grant contributions or investments placed by contributors with the PRGT at zero or below-market interest rates. In the latter case, the interest rate differential between the return earned on the investment by the PRGT and the rate of interest paid to the contributor represents a subsidy contribution to the PRGT.
IMF contributions to the subsidy accounts originated with the initial late-1970s gold sales and include investment income on the remaining balances. In addition, on several occasions, resources for reimbursement to the GRA for PRGT administrative expenses were redirected to subsidy accounts (Box 3.14). Prior to the implementation of a strategy to place the PRGT on a self-sustained footing, continued subsidization of PRGT lending depended on periodic fundraising rounds. For example, the 2009–14 financing package sought to raise SDR 1.5 billion in new subsidy resources, of which SDR 200–400 million was expected to come from new bilateral contributions (Box 3.13).
A new source of contributions to subsidy resources became available in 2012, after the Executive Board approved a distribution to the membership of SDR 700 million in reserves from windfall gold sales profits, on the condition that new subsidy contributions equivalent to at least 90 percent of the distribution are made available to the PRGT.25 This distribution, which became effective in October 2012, was part of a financing package endorsed by the Executive Board in July 2009 aimed at boosting the IMF’s lending capacity during 2009–14. In September 2012, the Executive Board also approved the distribution of SDR 1.75 billion in reserves from the remaining windfall gold sales profits as part of a strategy to generate subsidy resources to ensure the longer-term sustainability of the PRGT (Box 3.15). As with the earlier distribution, the Executive Board decided that this would become effective once satisfactory assurances have been obtained that at least 90 percent of the amount to be distributed will be made available to the PRGT. The Managing Director informed the Executive Board on October 10, 2013, that the required satisfactory financing assurances had been received, making the distribution effective on that day.
Full implementation of the self-sustained framework required an amendment to the PRGT Instruments to allow the investment income from the Reserve Account to be used as another source of subsidization of PRGT lending (see Section 3.5.4). These amendments required the approval of the Executive Board and the con-sent of all PRGT lenders, which was received in November 2014.
220.127.116.11 Reserve Account
An important feature of the PRGT is the Reserve Account (RA), which (1) provides security to the lenders to the Loan Accounts in the event of delayed or nonpayment by PRGT borrowers, (2) meets temporary mismatches between repayments from borrowers and payments to lenders, (3) covers the IMF’s costs of administering PRGT operations,26 and (4) will subsidize PRGT lending through use of its investment income, as envisaged under the self-sustained PRGT.
The Reserve Account is largely financed through a recycling of profits from gold sales undertaken in the late 1970s, which included interest on and repayment of Structural Adjustment Facility (SAF) loans, receipts from the Trust Fund after termination of the SAF, and investment income on balances held by the Reserve Account.
Historically, the Reserve Account provided reserve coverage of about 40 percent of outstanding PRGT obligations on average. Following the delivery of MDRI relief in 2006, which sharply reduced outstanding PRGT obligations, Reserve Account cover-age rose to 90 percent (Figure 3.6).
Figure 3.6Poverty Reduction and Growth Trust Reserve Account Coverage, 1988–2017
Source: Finance Department, International Monetary Fund.
Note: PRGT = Poverty Reduction and Growth Trust. The sharp decrease in credit outstanding in 2006 reflects the impact of the Multilateral Debt Relief Initiative (MDRI).
3.5.4 Self-Sustained PRGT
When concessional operations were first initiated by the IMF in the mid-1970s, they were intended to be fully self-financed from the proceeds of gold sales. However, in 1987, when the Enhanced Structural Adjustment Facility (ESAF) was established, trust financing sources were expanded to include bilateral loans and donor contributions to subsidize the lending. The idea of “self-sustained concessional operations” resurfaced in the mid-1990s.27
During the 1999 reform (when the ESAF was transformed into the PRGF), it was envisaged that after 2005 the IMF’s concessional lending would be conducted through a self-sustained PRGF, financed on a revolving basis from the Special Disbursement Account (SDA), through transfers of resources accumulating in the Reserve Account. The annual lending capacity of the self-sustained PRGF under such a scenario was estimated in 2004 to be about SDR 660 million in perpetuity.
These estimates were revisited in 2005 during the MDRI discussions. Given the possibility of larger demand for concessional resources following the debt relief initiative, it became more prudent to use Reserve Account income for loan subsidization, with loan resources provided on market terms by bilateral contributors. Such an approach allows for more lending and balanced, self-sustained operations.
The notion that resources in the Reserve Account would be used for loan subsidization was further affirmed by the Executive Directors during the 2009 discussions on the reform of concessional facilities. A new fundraising round launched under this reform sought to provide sufficient resources to cover the IMF’s concessional lending until 2014, with self-sustained operations supported from the Reserve Account starting thereafter. At that time, the IMF staff estimated the self-sustained capacity at about SDR 0.7 billion annually starting in 2015. In September 2012, the Executive Board approved a strategy to make the PRGT self-sustaining. The strategy relies on use of the resources from the first and second partial distributions of reserves linked to windfall gold sales to provide subsidy resources for a protracted period, with transfers of investment income from the Reserve Account providing the necessary subsidy resources thereafter.
The strategy to make the PRGT self-sustaining rests on three pillars (Box 3.15): (1) a base average annual lending capacity of SDR 1¼ billion, (2) contingent measures that can be activated when average financing needs exceed the base envelope by a substantial margin for an extended period; and (3) the expectation that all modifications to low-income-country facilities will be designed in a manner consistent with PRGT self-sustainability.
An important legal step toward establishing the self-sustaining PRGT was made on April 24, 2014, when the IMF’s Executive Board approved the necessary amendments to the PRGT Instrument that would allow future transfers of investment income from the Reserve Account to the General Subsidy Account to subsidize PRGT lending. The amendments required the consent of all lenders to the Loan Account of the PRGT—a necessary safeguard because the Reserve Account provides security to PRGT lenders. The final consent was received on November 11, 2014, and the self-sustained framework became effective on that date.
3.5.5 Debt Relief Framework
Debt relief is currently provided through the PRG-HIPC Trust and the CCR Trust.28 Each trust is structured to achieve the purposes for which it was established.
18.104.22.168 PRG-HIPC TRUST
The PRG-HIPC Trust is composed of three subaccounts for receiving and providing grants for debt relief and subsidization of outstanding Extended Credit Facility (ECF) loans and Umbrella Accounts (Figure 3.7).
Figure 3.7Debt Relief Framework
Source: Finance Department, International Monetary Fund.
Note: CCR Trust = Catastrophe Containment and Relief Trust; ECF = Extended Credit Facility; HIPC = Heavily Indebted Poor Countries; PRG = Poverty Reduction and Growth.
Subaccounts: The ECF subaccount, the HIPC subaccount, and the ECF-HIPC subaccount permit contributors to earmark resources for either ECF or HIPC or both operations. In addition, resources in the ECF-HIPC subaccount that are not earmarked for HIPC operations can be transferred to the ECF Subsidy Account if resources in the latter are insufficient for subsidizing ECF lending.
Umbrella Accounts: A separate subaccount, or Umbrella Account, is established for each HIPC beneficiary. Resources placed in the Umbrella Accounts consist of HIPC grants approved by the Executive Board and disbursed to the member at the completion point, interim assistance provided between the decision and completion points, plus accumulated interest. These resources are used to meet the beneficiary’s obligations to the IMF, in the case of interim assistance as they fall due, and in the case of eligible amounts that fall due after their completion point to allow for early repayment.
22.214.171.124 CCR Trust
The CCR Trust receives and provides resources for debt relief to allow the IMF to assist eligible low-income countries that are hit by catastrophic natural disasters or public health disasters.
3.5.6 Resources for Debt Relief
Resources for debt relief under the HIPC Initiative and the CCR have been provided by bilateral donors and the IMF. The IMF administers the resources as trustee of the associated trust accounts (Section 3.5.1).
126.96.36.199 HIPC Initiative
The HIPC Initiative has delivered SDR 2.6 billion in debt relief (Table 3.8). Resources for debt relief under the HIPC Initiative have been provided roughly equally by the IMF and contributions from IMF members. Resources received but not yet disbursed are invested, providing additional net income over time.
|Debt Relief and Sources of Financing||Amount|
|Total HIPC Debt Relief Delivered1||2.59|
|Financing by Source|
|Transfer from Special Disbursement||1.17|
|Transfer from General Resources||0.07|
|Cumulative Net Income||0.32|
|Remaining Resources Available||0.24|
|Pending Pledged Contributions to Finance Liberia’s Debt Relief 2||0.02|
The bulk of the IMF’s contribution came from the investment income on the net proceeds from 1999 off-market transactions in gold. A total of 12.9 million fine troy ounces in off-market gold transactions were completed in April 2000, generating net proceeds of SDR 2.23 billion.
These resources were placed in the Special Disbursement Account (SDA) and invested solely for the benefit of the HIPC Initiative.29 However, funding of the IMF’s MDRI resulted in some changes to the funding of the HIPC Initiative. Some of the gold corpus was used to finance the MDRI, and therefore it did not generate investment income to finance the HIPC Initiative, as originally envisaged. Therefore, to ensure that the HIPC
Initiative was sufficiently financed, on January 6, 2006, some SDA resources (SDR 530 million) were transferred to the HIPC subaccount of the PRG-HIPC Trust to be used exclusively for HIPC assistance30 (Figure 3.8).
Figure 3.8Financial Structure of the Poverty Reduction and Growth–Heavily Indebted Poor Countries Trust
Source: Finance Department, International Monetary Fund.
Note: ECF = Extended Credit Facility; ESF = Exogenous Shocks Facility; HIPC = Heavily Indebted Poor Countries; PRG = Poverty Reduction and Growth.
1 Includes transfers from the Reserve Account of the PRGT for the cost of administering PRGT operations for FY 1998–2004 and transfers of part of the interest surcharge on certain outstanding purchases under the Supplemental Reserve Facility.
Resources for the HIPC Initiative were substantially depleted after the delivery of debt relief. Table 3.8 provides a summary of all inflows and outflows to and from the PRG-HIPC Trust.
188.8.131.52 CCR Trust
When the PCDR Trust was established in June 2010, initial financing of SDR 280 million was transferred from surplus balances in the MDRI-I Trust through the Special Disbursement Account to the PCDR Trust. In February 2015, the remaining balance of the PCDR Trust, amounting to SDR 102 million, became available to finance the transformed CCR Trust, together with the balance of the MDRI-I Trust (SDR 13.2 million).31 Also in February 2015, the Managing Director launched a mobilization campaign involving a broad group of 58 members from advanced and emerging market economies to raise bilateral contributions to the order of $150 million to help put CCR Trust operations on a sustainable footing and enable the IMF to respond to future natural and public health disasters in countries meeting the qualification criteria for assistance. In August 2015, the MDRI-II Trust was liquidated, and its residual balance (SDR 38.9 million) was transferred to the CCR Trust.32 The CCR Trust is expected to be replenished through future donor contributions. Table 3.9 provides a summary of all inflows and outflows of the PCDR and CCR Trusts.
|Debt Relief and Sources of Financing||Amount|
|Total PCDR Debt Relief Delivered||0.18|
|Sources of Financing|
|Cumulative Net Income||0.00|
|Transfer to CCR Trust||0.10|
|Remaining Resources Available||—|
|Total CCR Trust Debt Relief Delivered||0.07|
|Sources of Financing|
|Cumulative Net Income||0.00|
|Remaining Resources Available||0.14|Box 3.1Concessional Lending Timeline
1975: The IMF establishes oil facilities to provide temporary balance of payments financing to those members adversely affected by higher oil prices, with a rate of charge of 2 percent. The loan resources are provided by several oil-producing countries and subsidy contributions made by close to 25 member countries.
1976: A Trust Fund is set up for concessional lending, financed through the sale of 25 million ounces of the IMF’s gold during 1976–80. Trust Fund loans include a 5½-year grace period and are repayable in 10 years, at an interest rate of ½ percent a year.1
1986: The Structural Adjustment Facility (SAF) is created to provide concessional financing to help low-income countries address balance of payments financing needs arising from structural weaknesses. The SAF Trust is financed by reflows of Trust Fund repayments, and its loans are extended on the same terms.
1987: The Enhanced Structural Adjustment Facility (ESAF) Trust offers higher access under three-year arrangements.
1994: The ESAF Trust is enlarged with new bilateral loans and subsidy contributions.
1999: The ESAF is renamed the Poverty Reduction and Growth Facility (PRGF) and refocused toward reducing poverty and strengthening growth on the basis of country-owned poverty reduction strategies.
2001: An Administered Account is set up at the IMF for donors to subsidize Emergency Post-Conflict Assistance (EPCA) purchases from the General Resources Account (GRA) to eligible countries (Box 3.2).
2005: Subsidized assistance is extended to eligible members receiving Emergency Natural Disaster Assistance (ENDA) purchases from the GRA.
2006: The Exogenous Shocks Facility (ESF) is set up within the PRGF Trust to assist low-income countries facing sudden and exogenous shocks (Box 3.3). To implement the ESF, the PRGF Trust is renamed the Poverty Reduction and Growth Facility and Exogenous Shocks Facility (PRGF-ESF) Trust.
2008: The Executive Board modifies the ESF to provide shocks assistance more rapidly and with streamlined conditionality. In particular, a rapid-access component (ESF-RAC) allows a member access via an outright disbursement of up to 25 percent of its quota with no upper-credit-tranche (UCT) conditionality (which involves a set of policies sufficient to correct balance of payments imbalances and enable repayment to the IMF). The high-access component (ESF-HAC) provides financing under an IMF program.
2010: The PRGF-ESF Trust is converted to the Poverty Reduction and Growth Trust (PRGT) in the wake of the sweeping reform of concessional assistance by the Executive Board. Three new facilities are created: the Extended Credit Facility (ECF), which succeeds the PRGF to provide financial assistance to countries with protracted balance of payments problems; the Standby Credit Facility (SCF) to address short-term balance of payments needs, allowing also for precautionary use; and the Rapid Credit Facility (RCF) to provide rapid, low-access financing with limited conditionality to meet urgent balance of payments needs. The SCF replaces the ESF-HAC, and the RCF replaces both the ESF-RAC and subsidized ENDA and EPCA to eligible countries.
2012: In September, the Executive Board approves a strategy to make the PRGT self-sustaining for the longer term. The IMF’s concessional lending is normally to be subsidized by returns on existing resources rather than new bilateral contributions. However, loan resources continue to be provided by bilateral lenders.
2013: In October, resources needed to sustain concessional lending to low-income countries at an average annual capacity of about SDR 1.25 billion—broadly in line with estimated demand for IMF support to the world’s poorest countries— are secured. A critical mass of 151 member countries commits to providing the PRGT their share in the partial distribution of the general reserve of SDR 1.75 billion which was attributed to windfall profits remaining from the partial sale of IMF gold. This amounts to more than 90 percent of the distribution approved in September 2012. This distribution followed a similar partial distribution of SDR 0.7 billion in general reserves attributable to windfall profits from gold sales in October 2012.
2014: In April, the Board approves an amendment to the PRGT Instrument to allow for the future use of income earned on the Reserve Account for subsidization of PRGT lending. In November 2014, the framework for a self-sustained PRGT is completed when all existing lenders approve this amendment.1 Of the $4.6 billion in profits from the gold sales, $1.3 billion is distributed to developing economy members in proportion to their quotas; $3.3 billion is made available for concessional lending through the Trust Fund.
Box 3.2Subsidization of Emergency Assistance and Its Financing
Since 1962, the IMF has provided emergency assistance to member countries afflicted by natural disasters. In 1995, the IMF’s emergency assistance was broadened to include countries in the aftermath of conflict. This assistance was provided under the Emergency Natural Disaster Assistance and Emergency Post-Conflict Assistance (ENDA/EPCA) Facilities, which were financed by General Resources Account (GRA) resources. Financial support through EPCA was subsidized for low-income countries from May 2001 onward and ENDA support from January 2005 onward. The Rapid Credit Facility (RCF) replaced subsidized use of ENDA/EPCA for low-income countries in January 2010.
The RCF provides rapid concessional financial assistance with limited conditionality to low-income countries facing urgent balance of payments needs (see Table 3.1).
Terms: Access to RCF financing is determined on a case-by-case basis and is generally limited to 18.75 percent of quota a year and 75 percent of quota cumulatively. However, under the RCF’s shocks window and the large natural disasters window, annual access is available up to 37.5 percent of quota and 60 percent of quota, respectively, and 75 percent on a cumulative basis. Financing under the RCF has a grace period of 5½ years and a final maturity of 10 years.
Subsidized Financing: In May 2001, the interest rate on ENDA/EPCA loans was lowered to 0.5 percent a year through subsidies from bilateral donors for postconflict cases eligible for IMF concessional facilities. After January 2005, subsidized rates were also available for emergency assistance for natural disasters at a member’s request—again, financed by donor contributions. As of April 30, 2013, contributions to subsidize ENDA/EPCA emergency assistance totaled SDR 41 million from 19 donors. The 2009 reform of the IMF’s concessional facilities and interest rate waivers granted by the Executive Board set the interest rate on financing under the RCF on an exceptional basis at zero from 2010 through 2016. In July 2015, the Executive Board set the interest rate on the RCF to zero percent. The ENDA/EPCA Subsidy Account remained open temporarily to subsidize emergency purchases outstanding on the effective date of the Poverty Reduction and Growth Trust (PRGT) reform (that is, as of January 7, 2010). All of these purchases were fully repaid by April 4, 2013. Accordingly, the account was terminated on February 1, 2014, with most of the remaining subsidy resources transferred to the PRGT Subsidy Account. Between 2001 and 2013, the account enabled subsidization of SDR 406 million in purchases under EPCA/ENDA.
Box 3.3Exogenous Shocks Facility
On November 23, 2005, the IMF Executive Board approved the establishment of the Exogenous Shocks Facility (ESF) within the Poverty Reduction and Growth Facility (PRGF). The ESF was designed to provide concessional financing to low-income countries that had no PRGF arrangement and were experiencing exogenous shocks. For purposes of the ESF, the Executive Board defined an exogenous shock as an event beyond the control of the authorities of the member country that had a significant negative impact on the economy. The ESF was modified several times and was superseded in 2009 by the Rapid Credit Facility (RCF) and Standby Credit Facility (SCF).
Because the ESF was established as a new facility under the PRGF Trust, it was necessary to mobilize additional loan and subsidy resources to make it operational. Resources were sought from bilateral creditors and secured by the PRGF Reserve Account. There were pledges of SDR 211.3 million in subsidy resources from 11 contributing members and about SDR 0.7 billion in loan resources for ESF-specific lending from one lender.
The ESF was modified in 2008 with the establishment of two separate modalities, the High-Access Component (ESF-HAC) and the Rapid-Access Component (ESF-RAC). The ESF-RAC made loan disbursements outright, rather than under an arrangement as required for the ESF-HAC.
As part of the 2009 low-income country facility reforms, the RCF replaced the ESF-RAC, and the SCF replaced the ESF-HAC. Existing ESF-HAC arrangements remained in effect until their expiration or cancellation.
Box 3.4Policy Support Instrument
The Executive Board established the Policy Support Instrument (PSI) in 2005. The PSI is a nonfinancial instrument that supports countries in a broadly stable and sustainable macroeconomic position—that is, low-income countries that may not need or want IMF financial assistance but seek to consolidate their economic performance with IMF monitoring and support and seek explicit Executive Board endorsement of their program and policies.
Purpose: The PSI is designed to promote a close policy dialogue between the IMF and a member country. It provides more frequent IMF assessments of the member’s economic and financial policies than is available through the regular annual surveillance. This support from the IMF also delivers clear signals to donors, creditors, and the general public about the strength of the country’s policies.
Eligibility: The PSI is available to all Poverty Reduction and Growth Trust (PRGT)-eligible countries with a poverty reduction strategy in place and a policy framework focused on consolidating macroeconomic stability, while deepening structural reforms in key areas in which growth and poverty reduction are constrained. Countries should have established a good track record of macroeconomic management and institutions that are able to support continued good performance, including in response to shocks.
Duration and repeated use: A PSI is approved for one to four years and may be extended for a maximum of five years. After the expiration or cancellation of the PSI, a successor PSI may be requested as long as the qualification criteria are met. There is no limit on the number of successor PSIs.
The PSI is a valuable complement to the lending facilities under the PRGT. If short-term financing needs arise, PSI users can request concurrent support under the Standby Credit Facility or under the Rapid Credit Facility.
Box 3.5Interest Rate Regime for Concessional Facilities
Prior to the 2009 reform of IMF concessional lending facilities, the interest rate on the IMF’s concessional loans, including Exogenous Shock Facility (ESF) loans, was fixed at 0.5 percent over a 10-year maturity, with a 5½-year grace period. The reform reduced the interest rates on all concessional loans while tailoring repayment terms under the different facilities of the Poverty Reduction and Growth Trust (PRGT) according to the type of balance of payments need. The interest rate was initially zero for the Extended Credit Facility (ECF) and Rapid Credit Facility (RCF) and 0.25 percent for the Standby Credit Facility (SCF) and ESF. However, in the wake of the global financial crisis, effective January 7, 2010, the Executive Board waived all interest payments for 2010 and 2011 on all outstanding concessional credit through the end of January 2012, including subsidized emergency assistance through the Emergency Natural Disaster Assistance (ENDA) and Emergency Post-Conflict Assistance (EPCA) under the General Resources Account (GRA).
The interest rate structure is reviewed every two years for all concessional loans (except balances outstanding under the old ESF, which will continue to carry a rate of 0.25 percent once the temporary interest waiver expires). At each review, the interest rate levels would normally be adjusted in line with developments in SDR interest rates, within the ranges shown in the table below. The new interest rates following reviews will apply to all existing and subsequent credit disbursed.
The first review of the interest rate structure was concluded in December 2011. Given the severe downside risks to the global economy, the Executive Board endorsed a one-year extension of the temporary interest waiver on all PRGT loans through the end of 2012. The Executive Board subsequently decided to extend the waiver on interest payments through end-2014, and then through the end of December 2016. In addition, in July 2015, the Executive Board agreed to set the interest rate on the RCF at zero. In the 2016 review of the interest rate structure, the interest rate setting mechanism was modified such that interest rates on the SCF and the ECF facilities will be set to zero if the SDR reference rate is lower than or equal to 0.75 percent, thus preserving the concessional nature of PRGT financing in periods of very low global interest rates. In addition, interest charges on outstanding balances under the ESF were waived through December 31, 2018.
(Percent a year)1
|Extended Credit Facility||Rapid Credit Facility||Standby Credit Facility|
|SDR Rate Less than or Equal to 0.75 Percent||0.00||0.00||0.00|
|SDR Rate More than 0.75 and Less than 2 Percent||0.00||0.00||0.25|
|SDR Rate Equal to or More than 2 Percent and Less than or Equal to 5 Percent||0.25||0.00||0.50|
|SDR Rate Greater than 5 Percent||0.50||0.00||0.75|Box 3.6Poverty Reduction Strategies
The Poverty Reduction Strategy (PRS) approach was initiated by the IMF and the World Bank in 1999 in the context of the Heavily Indebted Poor Countries (HIPC) Initiative. Countries were required to adopt and implement a PRS, set out in a Poverty Reduction Strategy Paper (PRSP), to qualify for the decision and completion points under the HIPC Initiative. Country-owned PRSPs were the basis of sustained program relationships with the IMF under the Extended Credit Facility and Policy Support Instrument (the nonfinancing instrument available to the IMF’s low-income members). PRSPs aimed to provide the crucial link between national public actions, donor support, and development outcomes.
The core principles underlying the PRS approach call for strategies to be:
Based on broad participation of civil society to promote national ownership of strategies
Results oriented and focused on outcomes that will benefit the poor
Comprehensive in recognizing the multidimensional nature of poverty
Partnership oriented, involving coordinated participation of development partners (government, domestic stakeholders, external donors)
Based on a long-term perspective for poverty reduction.
The 2009 reform of concessional facilities and the 2013 Review of Facilities for Low-Income Countries eased the procedural requirements related to the PRS while underscoring the importance of maintaining a strong focus on poverty reduction in low-income countries. Programs supported by the IMF’s concessional lending facilities will, when possible, include specific quantitative targets to safeguard social and other priority spending, consistent with the priorities in national poverty reduction strategies.
In June 2015, the Executive Board of the IMF reviewed the policy on the PRS in the context of engagement with its low-income members. The Board reiterated the importance of anchoring IMF-supported programs for low-income countries in strategies to achieve sustained poverty reduction and growth. It was also recognized that most countries eligible for concessional financing under the Poverty Reduction and Growth Trust (PRGT) had completed the HIPC process and no longer had to produce PRS documentation for the purpose of debt relief. In parallel, countries had been increasingly producing PRS documentation for their own domestic purposes on timelines determined by national needs. Reflecting these developments, the World Bank decided to delink its concessional financial support from the PRS process. As a result, the Executive Board agreed to reforms to the IMF’s PRS policy in the context of Extended Credit Facility (ECF) arrangements and Policy Support Instruments (PSIs). The key objectives of the reform include (1) maintaining a clear link between a member’s PRS and its policies under a Fund-supported program with streamlined PRS documentation; (2) preserving national ownership of the PRS process; and (3) allowing flexibility in PRS procedures to reflect country circumstances. For ECF arrangements and PSIs, documentation requirements are satisfied by the transmittal to the IMF of an Economic Development Document (EDD) that could be either an existing national development plan or strategy document or a newly prepared document on a member’s PRS elaborated for IMF-supported program purposes. The latter could take the form of an entirely new PRS document.11 For more information, see Reform of the Fund’s Poverty Reduction Strategies in Fund Engagement with Low-Income Countries – Proposals, IMF Policy Paper. www.imf.org/external/np/pp/eng/2015/052615.pdf
Box 3.7Debt Relief Timeline
1996: The IMF and the World Bank jointly launch the Heavily Indebted Poor Countries (HIPC) Initiative to provide assistance through grants that lower recipient countries’ debt-service repayments to the IMF.
1999: The HIPC Initiative is further enhanced to provide faster, deeper, and broader debt relief.
2006: The IMF implements the Multilateral Debt Relief Initiative (MDRI) to provide full relief of eligible (pre-2004) IMF debt to eligible HIPCs and other low-income countries. The HIPC Initiative and the MDRI are financed through bilateral contributions and IMF resources.
2010: In June, following the devastating earthquake in Haiti, the IMF introduces the Post-Catastrophe Debt Relief (PCDR) Trust, which allows the IMF to join international debt relief efforts when eligible low-income countries are hit by catastrophic natural disasters. The PCDR Trust is initially financed with the IMF’s own resources, with the expectation of replenishment through donor contributions, as necessary.
2015: In February, the IMF transforms the PCDR Trust to create the Catastrophe Containment and Relief (CCR) Trust. This broadens the range of situations covered by IMF disaster assistance to include epidemics with international spillover potential. The CCR Trust has two windows, each with different purposes, qualification criteria, and assistance terms. The CCR Trust was initially financed with the remaining balance of resources in the PCDR Trust, the residual balances of the MDRI-I and MDRI-II Trusts, and bilateral contributions. Additional bilateral resources are being sought to support the capacity of the CCR Trust to finance future debt relief for countries experiencing catastrophes.
Box 3.8The HIPC Sunset Clause
Under the sunset clause, the Heavily Indebted Poor Countries (HIPC) Initiative was initially set to expire at the end of 1998. This was meant to prevent the initiative from becoming permanent, to minimize moral hazard, and to encourage early adoption of reforms by HIPCs. The expiration date was subsequently extended four times to allow more time for eligible countries to undertake qualifying programs.
With the last extension until end of 2006, the IMF and World Bank Boards decided to close the initiative to new entrants by ring-fencing its application to those countries that met the income and indebtedness criteria based on debt data at the end of 2004. In April 2006, the IMF endorsed and closed a list of 14 countries that were assessed to have met these criteria, and these countries were grandfathered into the initiative: seven countries that were previously assessed eligible for HIPC Initiative debt relief (Central African Republic, Comoros, Côte d’Ivoire, Liberia, Somalia, Sudan, Togo), four additional countries (Eritrea, Haiti, Kyrgyz Republic, Nepal), and three countries that chose not to participate (Bhutan, Lao P.D.R., Sri Lanka). Sri Lanka later graduated from PRGT eligibility and therefore from eligibility for the HIPC Initiative. In 2007, Afghanistan was assessed to be HIPC-eligible after its debt-reconciliation process was completed (based on end-2004 debt data) and included in the ring-fenced list of countries. In 2009, Nepal chose not to participate in the initiative.
In December 2011, the IMF and the World Bank Executive Boards agreed to add end-2010 indebtedness as a criterion for eligibility for assistance under the HIPC Initiative, as well as to ring-fence further the list of eligible or potentially eligible countries based on that criterion. The expanded criteria eliminated from eligibility three countries: Bhutan and Lao P.D.R., both of which had previously indicated that they chose not to participate, and the Kyrgyz Republic because its external debt was assessed as well below the initiative’s thresholds.
The cost to the IMF of providing debt relief to the countries with protracted arrears was not included in the original cost estimates for the HIPC Initiative, and so additional financing will need to be secured when these members are ready to clear their arrears and embark on the HIPC Initiative.
Box 3.9Topping Up HIPC Assistance
Under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative, additional debt relief beyond that committed at the decision point can be committed at the time of the completion point on a case-by-case basis to bring the ratio of the net present value (NPV) of debt to exports to 150 percent (or NPV of debt to fiscal revenue to 250 percent). The burden-sharing approach is based on a creditor’s exposure after both enhanced HIPC relief and additional bilateral debt reduction. Topping-up assistance for eligible HIPCs is calculated on the basis of the debt stock before the delivery of Multilateral Debt Relief Initiative (MDRI) relief.
The additional topping-up assistance is committed only if the member’s declining debt sustainability stems primarily from a fundamental change in its economic circumstances as a result of exogenous factors. Moreover, the IMF will only deliver topping-up assistance once satisfactory financing assurances have been received from other creditors indicating they will also provide their share of debt relief under the HIPC Initiative. These indications of satisfactory financing assurances are similar to assurances required for the provision of HIPC debt relief at the completion point. This approach also ensured that the IMF’s MDRI debt relief was additional to assistance under the HIPC Initiative.
|Country||Amount||Percent of Original Commitment||Dates of||Time until Satisfactory Financing Assurances Were in Place (months)|
|1||Burkina Faso||10.9||65||April 2002||October 2004||30.8|
|2||Ethiopia||18.2||68||April 2004||March 2005||11.1|
|3||Malawi||10.1||43||August 2006||December 2006||3.7|
|4||Niger||9.7||45||April 2004||March 2005||11.4|
|5||Rwanda||13.0||38||April 2005||August 2005||4.6|
|6||São Tomé and Príncipe||0.8||. . .||March 2003||December 2008||9.5|
|Average||10.4||51.9||11.8|Box 3.10Liberia’s Debt Relief
Liberia was in arrears to the IMF from 1984 until March 14, 2008, when it regularized its relations with the IMF through the clearance of SDR 543 million in arrears. This paved the way for Liberia to receive new financing and debt relief.
New financing: On March 14, 2008, with financing from a bridge loan provided by the United States, Liberia cleared its long-standing overdue obligations to the IMF. On the same day, the IMF’s Executive Board approved an Extended Credit Facility (ECF; formerly the Poverty Reduction and Growth Facility (PRGF)) and Extended Fund Facility (EFF) arrangements amounting to SDR 239.02 million and SDR 342.77 million, respectively. Disbursements under the ECF and EFF arrangements were front-loaded in order to repay the bridge loan.
Debt relief: On March 18, 2008, the IMF and the World Bank committed to providing Liberia debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative. The IMF Executive Board also agreed that upon reaching the completion point, Liberia would receive Multilateral Debt Relief Initiative (MDRI)-type (beyond-HIPC) debt relief to cover any remaining debt originating under the successor ECF and EFF arrangements that corresponded to the stock of arrears at the time of arrears clearance.
Fundraising: A large number of IMF member countries contributed to the financing package of debt relief for Liberia. Bilateral contributions from 102 countries, including low-income countries, were facilitated by a partial distribution from the balances of the First Special Contingent Account (SCA-1) and the proceeds of deferred charges adjustments used to offset the impact on IMF income from Liberia’s arrears.
In June 2010, Liberia received SDR 549 million in debt relief from the IMF. The IMF debt relief was associated with the stock of arrears at arrears clearance, subject to HIPC and beyond-HIPC assistance (SDR 427 million and SDR 116 million, respectively), and remaining HIPC assistance associated with the first disbursement of new credit under the ECF (SDR 5.5 million).
Box 3.11The Multilateral Debt Relief Initiative
In June 2005, the Group of Eight (G8) major industrial countries proposed that three multilateral institutions— the IMF, the International Development Association (IDA) of the World Bank, and the African Development Fund (AfDF)—provide resources beyond the Enhanced Heavily Indebted Poor Countries (HIPC) initiative to help a group of low-income countries advance toward the United Nations Millennium Development Goals by canceling 100 percent of their debt claims on those countries. The decision to grant debt relief was a separate responsibility of each institution, with varying approaches to coverage and implementation. In early 2007, the Inter-American Development Bank decided to join this initiative and provided similar debt relief to the five HIPCs in the Western Hemisphere.
The IMF Executive Board adopted the Multilateral Debt Relief Initiative (MDRI) in November 2005, and it became effective on January 5, 2006. Countries eligible for MDRI debt relief included those that had reached the completion point under the HIPC Initiative and those with income per capita below $380 a year and outstanding debt to the IMF on December 31, 2004. Under the IMF’s MDRI, qualifying members received 100 percent debt relief on the full stock of debt owed to the IMF as of December 31, 2004, that remained outstanding at the time of the provision of debt relief and was not covered by HIPC Initiative assistance. To qualify for the relief, the IMF Executive Board also required these countries to be current on their obligations to the IMF and to have demonstrated satisfactory performance in macroeconomic policies, implementation of a poverty reduction strategy, and public expenditure management.
Immediately following the effective date of the MDRI decision in January 2006, the IMF delivered MDRI debt relief totaling SDR 2.0 billion to 19 qualifying countries. These countries included 17 HIPCs that had reached their completion points1 and two non-HIPCs. Total IMF MDRI debt relief granted to 30 qualifying countries reached SDR 2.3 billion.2
MDRI funding did not involve any new resource mobilization. The MDRI-I and MDRI-II Trusts were composed of one account each that received and provided resources for debt relief under the MDRI to two groups of countries differentiated by their levels of income per capita. The MDRI-I Trust was financed with IMF resources of SDR 1.5 billion that were transferred from the Special Disbursement Account (SDA), representing the IMF’s resources from past gold sales. The MDRI-II Trust was financed by a direct, one-time transfer of SDR 1.12 billion from the PRGF-ESF Subsidy Account of the Poverty Reduction and Growth Trust (PRGT), representing bilateral resources from 37 contributors. There is no longer any outstanding MDRI-eligible debt to the IMF. In February 2015, the balance of the MDRI-I Trust (SDR 13.2 million) was transferred to the Catastrophe Containment and Relief (CCR) Trust, and in August 2015, the MDRI-II Trust was liquidated and its residual balance (SDR 38.9 million) was transferred to the CCR Trust.
|Eligible under the MDRI-I Trust (per capita income at or below $380)||Eligible under the “MDRI-II Trust” (per capita income above $380)|
|Countries that have benefited from the MDRI|
|“Completion point” HIPCs: 36 countries have reached the completion point under the Enhanced HIPC Initiative||Afghanistan, Burkina Faso, Burundi, Central African Republic, Chad, Democratic Republic of the Congo, Ethiopia, The Gambia, Ghana, Guinea-Bissau, Liberia, Madagascar, Malawi, Mali, Mozambique, Niger, Rwanda, São Tomé and Príncipe, Sierra Leone, Tanzania, Togo, Uganda||Benin, Bolivia, Cameroon, Comoros, Republic of Congo, Côte d’Ivoire, Guinea, Guyana, Haiti, Honduras, Mauritania, Nicaragua, Senegal, Zambia|
|Non-HIPC countries (2) with per capita income below $380 and outstanding debt to the IMF||Cambodia, Tajikistan|Box 3.12Trust Assets: Investments in Support of Concessional Financing
The IMF manages several trusts, funded and invested to augment its lending capacity to low-income countries. The IMF acts as trustee, and these trusts are separate from general quota resources. The trusts have been established to meet specific needs.
The trusts include contributions from the IMF, from its members, and from other sources. The IMF’s contributions have included funds from the Special Disbursement Account. Other funding sources include multilateral institutions and bilateral creditors and donors, who have provided grants, deposits, and loans at zero or below-market interest rates. The figure below shows the total resources by trust.
Total Trust Assets
Source: Finance Department, International Monetary Fund.
Note: CCRT = Catastrophe and Containment Trust; HIPC = Heavily Indebted Poor Countries; PRGT = Poverty Reduction and Growth Trust; SDR = Special Drawing Right.
As of the end of December 2017, most of the trust assets (over 90 percent) were in the Poverty Reduction and Growth Trust (PGRT). The trust to support the Heavily Indebted Poor Countries (HIPC) Initiative held about 5 percent of total trust assets, and the Catastrophe Containment and Relief (CCR) Trust about 2 percent.
Investment Strategy: Between 1987 and 2000, the trust assets were invested in either SDR-denominated deposits at the Bank for International Settlements (BIS) or short-term debt instruments issued by government or official institutions. In March 2000, to supplement the resources available for concessional lending, the Executive Board endorsed a strategy focused on longer-term investments with the aim of enhancing returns. Short-term deposits were kept to a minimum, and the bulk of the funds were invested over longer horizons in line with a one- to three-year SDR-weighted government bond benchmark. Since 2000, about 5 to 10 percent of the trust resources have been held in short-term deposits with the BIS to ensure adequate liquidity to meet the operational requirements of managing inflows from donations and repayments and outflows for loans.
In 2017, the Executive Board reviewed the investment strategy for the Trust Accounts. This resulted in a revision to the PRGT’s investment strategy and objective of generating investment income to support self-sustainability with a long-term investment horizon. The Board also granted the IMF, as trustee, broad authority to determine the investment strategy for the PRGT. For the other Trust Accounts, the review confirmed the existing investment strategy and relatively short investment horizon in light of the importance of meeting potential liquidity needs. The new investment strategy will be phased in over three years (or four years in exceptional circumstances) beginning in FY 2018.
Investment Guidelines for Trust Assets: In the investment strategy review, the Executive Board approved new investment guidelines that establish the strategic parameters for the investment of the Trust Assets. These broadly align the governance structure for Trust Assets with that of the Investment Account (see Chapter 5). The guidelines define the eligible investments, which generally consist of domestic government bonds of member countries, bonds and other marketable obligations of eligible national and international financial organizations, deposits with the BIS, and cash-like instruments. To help secure the PRGT’s investment objectives and diversify risk, the guidelines allow for additional eligible instruments, such as emerging market government bonds, corporate bonds, and publicly listed equities, in line with a moderately diversified long-term portfolio.
The investments are handled by external managers (except for BIS investments, which are managed by staff) and assets are held in safekeeping by custodian institutions. Although the resources and records of the Investment Account and the trusts are separate, the investment activities for both portfolios are carried out in a consistent way in order to realize the cost benefits of economies of scale.
While all trust operations and transactions are denominated in SDRs, trust investments may be invested in SDR-denominated assets, investments in the currencies that comprise the SDR, or non-SDR currencies (for PRGT assets), subject to alignment with or hedging to the SDR basket to mitigate currency risk.
Box 3.13The 2009 Fundraising Exercise
As part of the 2009 reform of IMF concessional lending facilities, a major fundraising drive was launched to secure an additional SDR 10.8 billion in loan resources and SDR 1.5 billion in subsidy resources to support projected demand for concessional loans of SDR 11.3 billion during 2009–14.
Loan resources: In 2009, the IMF staff initially projected that loan resources of about SDR 9 billion would be needed to ensure a projected lending capacity of SDR 11.3 billion during 2009–11. However, the target was subsequently raised to SDR 10.8 billion to allow for a 20 percent buffer for encashment purposes. By the end of 2011, 14 lenders had pledged SDR 9.8 billion in loan resources, including seven lenders that participate in the encashment regime.
Subsidy resources: In 2009, the IMF staff projected resources needed to fully subsidize lending during 2009–14 at SDR 2.5 billion in end-2008 net present value (NPV) terms. With SDR 1.0 billion available at the time, additional subsidy resources of SDR 1.5 billion were needed. The IMF Executive Board agreed to a financing package composed of mostly internal sources that broadly covered the SDR 1.5 billion NPV target:
A transfer of SDR 0.62 billion from the Poverty Reduction and Growth Trust (PRGT) Reserve Account to the General Subsidy Account (GSA) 1
New bilateral contributions of SDR 0.2–0.4 billion
Delayed reimbursement to the General Resources Account (GRA) for PRGT administrative costs for three financial years, FY 2010–12, of SDR 0.15–0.20 billion
Use of SDR 0.5–0.6 billion linked to gold sales profits from a distribution to members of reserves attributed to gold sales profits.
Box 3.14Reimbursement of Administrative Expenses Associated with Concessional Lending Operations
The Office of Budget and Planning (OBP) provides the Finance Department (within the IMF) with an estimate of the cost of administering the IMF’s concessional lending operations at the end of each financial year. Since the inception of the Trust Fund in 1976, all such administrative expenses have been accounted for, and the general rule is that costs are reimbursed to the General Resources Account (GRA). In 1987, the IMF Executive Board adopted a decision providing for annual reimbursement to the GRA of the expenses incurred in conducting the business of the Enhanced Structural Adjustment Facility, now the Poverty Reduction and Growth Trust (PRGT).
Exceptions to the general rule have been agreed to by the Executive Board in the context of funding initiatives since 1998 to increase concessional lending capacity or provide debt relief. During FY 1998–2004, the Executive Board agreed to redirect SDR 366.2 million of such payments from the GRA to the PRGF-HIPC Trust to help finance both subsidy needs and debt relief. Similarly, during FY 2005–09, SDR 237.3 million was redirected to benefit the subsidy account of the PRGF-ESF Trust.
Reimbursements were resumed as part of the new income model endorsed by the Executive Board in 2009. However, the new income model provides for an exception. It allows temporary suspension of the annual reimbursements to the GRA for PRGT expenses if the resources of the trust are deemed unlikely to be sufficient to support anticipated demand for PRGT assistance and the IMF has been unable to obtain additional subsidy resources to cover the anticipated demand.
As part of the 2009 concessional financing reforms, the Executive Board decided that, for a period of three years, starting in FY 2010, an amount equivalent to the expenses of operating the PRGT would be transferred from the PRGT Reserve Account to the General Subsidy Account of the PRGT instead of to the GRA. This generated additional PRGT subsidy resources of SDR 147.9 million.
In September 2012, the Executive Board approved a financing strategy for the PRGT aimed at placing concessional lending on a self-sustaining basis over the longer term. This strategy involves establishing an annual base lending envelope of SDR 1¼ billion by using available resources and contributions from members linked to the windfall profits from the recent gold sales. Part of the financing strategy called for reimbursement of the GRA for PRGT administrative expenses to recommence in FY 2013 and continue thereafter. If, however, demand for PRGT borrowing substantially exceeds the base envelope for an extended period, the strategy for the self-sustained PRGT allows the Executive Board to consider further temporary suspension of reimbursement.
Administrative Expenses Associated with SAF/PRGF/PRGT Operations, 1987–2017
Source: Finance Department, International Monetary Fund.
Note: SAF = Structural Adjustment Facility; PRGF = Poverty Reduction and Growth Facility; PRGT = Poverty Reduction and Growth Trust.
Box 3.15Making the Poverty Reduction and Growth Trust Sustainable
A three-pillar strategy to ensure that the Poverty Reduction and Growth Trust (PRGT) has sufficient resources to meet projected demand for IMF concessional lending over the long term was set out in the Proposal to Distribute Remaining Windfall Gold Sales Profits and Strategy to Make the Poverty Reduction and Growth Trust Sustainable (September 17, 2012). It consists of the following:
1. A base envelope of about SDR 1¼ billion in annual lending capacity, which is expected to cover concessional lending needs over normal periods: While financing commitments can vary substantially from year to year, the self-sustaining PRGT can build up capacity in years with low levels of new lending commitments and draw down capacity in years when demand is high. This implies that the base envelope could cover periods during which demand in individual years could be much higher, as long as fluctuations average out over a number of years.
2. Contingent measures that can be put in place when average financing needs exceed the base envelope by a substantial margin for an extended period: If the Executive Board considers that the self-sustaining capacity will decline substantially below SDR 1¼ billion, it could decide to activate a range of contingent measures, including (1) reaching additional understanding on bilateral fundraising efforts among a broad range of the membership; (2) suspending for a limited period the reimbursement of the GRA for PRGT administrative expenses; and (3) modifying access, blending, interest rate, and eligibility policies to reduce the need for subsidy resources.
3. A principle of self-sustainability under which future modifications to facilities for low-income countries would be expected to ensure that the demand for IMF concessional lending can reasonably be met with the resources available under the first and second pillars under a plausible range of scenarios.1
The estimate of a self-sustained capacity of SDR 1¼ billion is based on the projected annual returns on the balances in the four PRGT subsidy accounts—including all existing subsidy resources and those facilitated by two partial distributions of amounts in the IMF general reserve attributed to the windfall gold sales profits—and investment income from the Reserve Account in the steady state.
Poverty Reduction and Growth Trust Self-Sustainability
Source: Finance Department, International Monetary Fund.
A New Architecture of Facilities for Low-Income Countries and Reform of the Fund’s Concessional Financing Framework— Decision No. 14385-(09/79), adopted July 23, 2009 www.imf.org/external/np/pp/eng/2009/072309.pdf
Catastrophe Containment and Relief Trust, IMF Factsheet: www.imf.org/external/np/exr/facts/ccr.htm
Eligibility to Use the Fund’s Facilities for Concessional Lending, 2017, IMF Policy Paper, May 23, 2017: www.imf.org/en/Publications/Policy-Papers/Issues/2017/05/23/pp052317-eligibility-to-use-the-fund-facilities-for-concessional-financing-for-2017
Financing for Development: Enhancing the Financial Safety Net for Developing Countries, IMF Policy Paper, July 8, 2015: www.imf.org/external/np/sec/pr/2015/pr15324.htm
Guidance for the Investment of Temporary Resources to
Generate Income to Contribute to PRG, PRG-HIPC, and CCR Trusts, IMF Policy Paper, July 28, 2017: www.imf.org/en/Publications/Policy-Papers/Issues/2017/09/07/pp090617-guidance-for-the-investment-of-temporary-resources
Guidelines for Investing PRG, PRG-HIPC, and CCR Trusts Assets, IMF Policy Paper, March 28, 2017: www.imf.org/en/Publications/Policy-Papers/Issues/2017/09/07/pp090617-guidance-for-Investing-trust-assets
Heavily Indebted Poor Countries (HIPC) Initiative—List of Ring-Fenced Countries that Meet the Income and Indebtedness Criteria at End-2004, IMF Policy Paper, April 11, 2006: www.imf.org/external/np/pp/eng/2006/041106.pdf
IMF Distributes US$1.1 Billion of Gold Sales Profits in Strategy to Boost Low-Cost Crisis Lending to Low-Income Countries, Press Release No. 12/389, October 13, 2012, www.imf.org/external/np/sec/pr/2012/pr12389.htm
IMF Executive Board Adopts Decisions to Enhance the Financial Safety Net for Developing Countries, Press Release No. 15/324, July 8, 2015: www.imf.org/external/np/sec/pr/2015/pr15324.htm
IMF Executive Board Approves the Establishment of Policy Support Instruments for Aiding Low-Income Countries, Press Release No. 05/145, October 14, 2005: www.imf.org/external/np/sec/pn/2005/pn05145.htm
IMF Executive Board Discusses “Financing for Development,” Press Release No. 15/325, July 8, 2015: www.imf.org/external/np/sec/pr/2015/pr15325.htm
IMF Executive Board Discusses the List of Ring-Fenced Countries that Meet the End-2004 Income and Indebtedness Criteria under the Enhanced HIPC Initiative and the Review of Financing of the Fund’s Concessional Assistance and Debt Relief to Low-Income Member Countries, Public Information Notice No. 06/41, April 18, 2006: www.imf.org/external/np/sec/pn/2006/pn0641.htm
IMF Executive Board Establishes a Catastrophe Containment and Relief Trust to Enhance Support for Eligible Low-Income Countries Hit by Public Health Disasters, Press Release No. 15/53, February 13, 2015: www.imf.org/external/np/sec/pr/2015/pr1553.htm
IMF Executive Board Establishes a Post-Catastrophe Debt Relief Trust, Public Information Notice No. 10/92, July 21, 2010: www.imf.org/external/np/sec/pn/2010/pn1092.htm
IMF Executive Board Modifies PRGT Interest Rate Mechanism and Approves Zero Rates on All Low-Income Country Lending Facilities through End-2018, Press Release No. 16/448, October 6,2016: www.imf.org/en/news/articles/2016/10/06/pr16448-imf-executive-board-modifies-prgt-interest-rate-mechanism
IMF Executive Board Reforms the Fund’s Policy on Poverty Reduction Strategies in Fund Engagement with Low-Income Countries, Press Release No. 15/371, August 6, 2015: www.imf.org/external/np/sec/pr/2015/pr15371.htm
IMF Executive Board Reviews Eligibility to Use the Fund’s Facilities for Concessional Financing for 2015, Press Release No. 15/369, July 31, 2015: www.imf.org/external/np/sec/pr/2015/pr15369.htm
IMF Executive Board Removes Remedial Measures Applied to Zimbabwe, Press Release No.16/505, November 14, 2016: www.imf.org/en/news/articles/2016/11/14/pr16505-zimbabwe-imf-executive-board-removes-remedial-measures
IMF Extended Credit Facility, IMF Factsheet: www.imf.org/external/np/exr/facts/ecf.htm
IMF Lending to Poor Countries—How Does the PRGF Differ from the ESAF? April 2001: www.imf.org/external/np/exr/ib/2001/043001.htm
IMF Rapid Credit Facility, IMF Factsheet: www.imf.org/external/np/exr/facts/rcf.htm
IMF Secures Financing to Sustain Concessional Lending to World’s Poorest Countries over Longer Term, Press Release No. 13/398, October 10, 2013: www.imf.org/external/np/sec/pr/2013/pr13398.htm
IMF Standby Credit Facility, IMF Factsheet: www.imf.org/external/np/exr/facts/scf.htm
IMF Stand-By Arrangements, IMF Factsheet: www.imf.org/external/np/exr/facts/sba.htm
Large Natural Disasters—Enhancing the Financial Safely Net for Developing Countries, IMF Policy Paper, May 2017: www.imf.org/en/publications/policy-papers/issues/2017/05/15/pp051517-large-natural-disasters-enhancing-the-financial-safety-net-for-developing-countries
Liberia Wins $4.6 Billion in Debt Relief from IMF, World Bank, IMF Survey, June 29, 2010 www.imf.org/external/pubs/ft/survey/so/2010/car062910a.htm
LIC Debt Sustainability Analysis Documents: www.imf.org/external/pubs/ft/dsa/lic.aspx
Poverty Reduction and Growth Trust (PRGT) Pledges Linked to the Distribution of the Remaining SDR 1,750 Million Windfall Profits from Gold Sales: www.imf.org/external/np/fin/prgt/second.htm
Poverty Reduction Strategy Papers: www.imf.org/external/np/prsp/prsp.aspx
Poverty Reduction and Growth Trust—Review of Interest Rate Structure, IMF Policy Paper, November 17, 2014: www.imf.org/external/np/pp/eng/2014/111714.pdf
Poverty Reduction and Growth Trust—Review of Interest Rate Structure, IMF Policy Paper, August 24, 2016: www.imf.org/external/np/pp/eng/2016/100616a.pdf
Proposal to Distribute Remaining Windfall Gold Sales Profits and Strategy to Make the Poverty Reduction and Growth Trust Sustainable, IMF Policy Paper, September 17, 2012: www.imf.org/external/np/pp/eng/2012/091712.pdf
Reform of the Fund’s Policy on Poverty Reduction Strategies in Fund Engagement with Low-Income Countries – Proposals, IMF Policy Paper, July 2015: www.imf.org/external/np/sec/pr/2015/pr15371.htm
Review of Exceptional Access, IMF Policy, Paper, March 23, 2004: www.imf.org/external/np/acc/2004/eng/032304.pdf
Review of Facilities for Low-Income Countries-Proposals for Implementation, IMF Policy Paper, March 15, 2013: www.imf.org/external/np/pp/eng/2013/031813.pdf
Selected Decisions and Selected Documents of the IMF, Thirty-Seventh Issue—Fourteenth General Review of Quotas and Reform of the Executive Board: www.imf.org/external/pubs/ft/sd/2013/123113.pdfUpdate on the Financing of the Fund’s Concessional Assistance and Debt Relief to Low-Income Member Countries, IMF Policy Paper, April 15, 2016: www.imf.org/external/np/pp/eng/2016/041516.pdf
Update on the Financing of the Fund’s Concessional Assistance and Debt Relief to Low-Income Member Countries, IMF Policy Paper, April 17, 2017: www.imf.org/en/Publications/Policy-Papers/Issues/2017/04/17/pp040317update-on-financing-of-concessional-assistance-and-debt-relief-to-lics
Zimbabwe: Settlement of Overdue Financial Obligations to the Poverty Reduction and Growth Trust, Lifting of Declaration of Noncooperation, Lifting of Restriction on Fund Technical Assistance, and Restoration of Poverty Reduction and Growth Trust Eligibility-Press Release and Staff Report, IMF Country Report No. 16/382, December 2016: www.imf.org/en/publications/cr/issues/2016/12/31/zimbabwe-zimbabwe-settlement-of-overdue-financial-obligations-to-the-poverty-reduction-and-44473
Before the Trust Fund (TF) and Structural Adjustment Facility (SAF) loans, the IMF provided loans under the Oil Facility at below-market rates to 25 fuel-importing countries deemed particularly hard hit by the increased cost of oil imports. The Oil Facility was subsidized with contributions from donor countries deposited in the Oil Facility Subsidy Account established for this purpose. However, this Oil Facility did not differentiate among members based on income as did the TF and SAF.
UCT standard conditionality is the set of program-related conditions intended to ensure that IMF resources support the program’s objectives, with adequate safeguards to the IMF resources.
This was part of a set of proposals adopted by the Executive Board of the IMF in July 2015 in the context of the Financing for Development initiative to enhance the financial safety net for developing economies with IMF financial support. The measures include (1) increasing access to IMF concessional resources for all countries eligible for the IMF’s PRGT, (2) rebalancing the mix of concessional to nonconcessional financing toward more use of nonconcessional resources for better-off PRGT-eligible countries that receive “blended” financial support from the Fund, (3) increasing access to fast-disbursing concessional and nonconcessional resources for countries in fragile situations or those hit by conflict or natural disasters, and (4) setting the interest rate on loans under the RCF at zero. For more information, see Financing for Development: Enhancing the Financial Safety Net for Developing Countries. www.imf.org/external/np/pp/eng/2015/061115b.pdf
See Poverty Reduction and Growth Trust—Review of Interest Rate Structure, IMF Policy Paper, October 2016. www.imf.org/external/np/pp/eng/2016/100616a.pdf
Under the PRGT Instrument, if a member has received a disbursement under the RCF within the preceding three years, any additional disbursements under the RCF may be approved only if the trustee is satisfied that (1) the member’s balance of payments need was caused primarily by a sudden and exogenous shock or (2) the member has established a track record of adequate macroeconomic policies, typically for about six months prior to the request—however, a member may never receive more than two disbursements under the RCF during any 12-month period.
In July 2015, the Executive Board agreed that any purchases made under the Rapid Financing Instrument (RFI) should count toward the applicable RCF annual and cumulative limits to eliminate the possibility that PRGT-eligible members could access emergency assistance under both the GRA and the PRGT.
In May 2017, the IMF Executive Board made the decision to create new windows under both the RCF and RFI with an annual access limit of 60 percent of a member’s quota for countries experiencing urgent balance of payments needs arising from large natural disasters. For more information, see Large Natural Disasters—Enhancing the Financial Safely Net for Developing Countries, May 2017. www.imf.org/en/publications/policy-papers/issues/2017/05/15/pp051517-large-natural-disasters-enhancing-the-financial-safety-net-for-developing-countries
Norms applicable to an ECF arrangement with three-year duration and an SCF arrangement with 18-month duration. SCF arrangements that are treated as precautionary are subject to an annual access limit at approval of 56.25 percent of quota and an average annual access limit of 37.5 percent of quota.
Members that are not presumed to blend may receive financing exclusively on concessional terms. Provided they meet the policies on access to the GRA, they may also request access to blend GRA resources and concessional resources, typically when financing needs exceed the applicable PRGT access limits, or on a stand-alone basis. However, given the financial benefits of borrowing on concessional terms, the IMF staff will continue to advise PRGT-eligible members considering IMF financial support to borrow from the PRGT up to the applicable limits before seeking GRA resources.
The 1:2 blend of PRGT and GRA resources applies to the annual sublimits for the RCF and to the access limit under an SCF arrangement treated as precautionary.
In June 2015, the Executive Board of the IMF agreed to proposed reforms to the IMF’s PRS policy in the context of ECF arrangements and PSIs. For more information, see Reform of the Fund’s Policy on Poverty Reduction Strategies in Fund Engagement with Low-Income Countries—Proposals. www.imf.org/external/np/sec/pr/2015/pr15371.htm
See Eligibility to Use the Fund’s Facilities for Concessional Financing, January 2010. www.imf.org/external/np/pp/eng/2010/011110.pdf
In November 2016, Zimbabwe was reinstated to the list of PRGT-eligible countries following the full settlement of its overdue financial obligations to the PRGT and the Executive Board’s decision to lift remedial measures.
However, if the member has an “IDA-only” or “IDA loan-grant mix” status at the World Bank, such an assessment by the Executive Board will be required.
See Heavily Indebted Poor Countries (HIPC) Initiative and Multilateral Debt Relief Initiative (MDRI)—Status of Implementation and Proposals for the Future of the HIPC Initiative, November 2011. www.imf.org/external/np/pp/eng/2011/110811.pdf
Additional debt relief beyond that committed at the decision point can be committed at the time of the completion point on a case-by-case basis (Box 3.9).
CCR support is also available to PRGT-eligible countries with a population of less than 1.5 million and whose annual income per capita is below twice the IDA cutoff.
Support could be larger in three exceptional cases: (1) when debt-service obligations to the IMF are exceptionally burdensome in the near term; (2) when there is an international effort to provide debt-service flow relief to the afflicted country; and (3) when the country is rated at high risk for debt distress or in debt distress, under the joint Bank-Fund Debt Sustainability Framework.
This includes a liquidity buffer of SDR 1.8 billion to enable the voluntary encashment regime.
See Update on the Financing of the Fund’s Concessional Assistance and Proposed Amendments to the PRGT Instrument, IMF Policy Paper, April 2014. www.imf.org/external/np/pp/eng/2014/040714a.pdf
The trustee may choose, however, not to draw from GLA borrowing agreements from past fundraising rounds, depending on overall commitments to the various loan accounts of the PRGT.
Commitments and loan claims under borrowing agreements are denominated in SDRs. The borrowing agreements specify whether drawings are made in SDRs or in any freely usable currency. Repayment is made in SDRs or in any freely usable currency. In the case of agreements in which a freely usable currency is disbursed, the amount repaid is fixed in SDR terms, but may change in terms of the currency disbursed owing to exchange rate movements during the loan period. Lenders in SDRs are expected to have voluntary SDR trading agreements in place with the SDR Department.
As of October 1, 2016, the derived six-month SDR interest rate is the weighted average of the bond equivalent yield for six-month US Treasury bills, the six-month euro-denominated euro government bond yield for bonds rated AA and above as published by the European Central Bank, six-month government bond yield published by the China Central Depository and Clearing Co. Ltd. (CCDC), bond equivalent yield on six-month Japanese Treasury bills, and six-month interbank rate in the United Kingdom. The weights of each instrument reflect those of the associated currency in the valuation of the SDR.
Borrowing agreements also generally provide for the temporary suspension of drawings at the request of the lender.
The windfall occurred because the gold was sold at a higher price than assumed when the new income model was endorsed by the Executive Board (see Chapter 5).
The GRA is generally reimbursed for the expenses of conducting the business of the SDR Department, the CCR Trust, and the PRGT. As part of the 2009–14 financing package, the Executive Board decided that for financial years 2010 through 2012, the GRA would forgo reimbursement of the estimated cost of administering the PRGT and the equivalent would be transferred from the PRGT Reserve Account (through the Special Disbursement Account) to the General Subsidy Account of the PRGT (see Box 3.14).
Also, in October 1996, the Managing Director made a statement to Governors at the Annual Meetings that all Executive Directors had welcomed the agreement that would permit self-sustained and, therefore, de facto permanent concessional financing operations by the IMF, which became a long-standing goal.
Debt relief was also previously provided under the Multilateral Debt Relief Initiative (MDRI). The Executive Board adopted the MDRI in November 2005, and it became effective on January 5, 2006. There is no longer any outstanding IMF debt eligible for MDRI debt relief. The two MDRI trust accounts were terminated in mid-2015 (Box 3.11).
The SDA is the vehicle for receiving and investing profits from the sale of the IMF’s gold and for making transfers to other accounts for special purposes authorized in the Articles of Agreement, in particular for financial assistance to low-income members of the IMF.
As of January 2006, the balance of SDR 2.5 billion in the Special Disbursement Account (SDA) had been fully utilized. An amount of SDR 1.5 billion was transferred to the MDRI-I Trust to finance MDRI relief to countries at or below the per capita income threshold of $380 a year. When the MDRI decision went into effect, SDR 1.12 billion in bilateral subsidy contributions was transferred from the PRGF-ESF Trust to the MDRI-II Trust to finance MDRI relief to HIPC countries with incomes above the income threshold of $380. This outflow was partially compensated for by a one-time transfer of SDR 0.47 billion from the SDA to the PRGT. The remaining balance of SDR 0.53 billion in the SDA was transferred to the PRG-HIPC Trust.
The MDRI-I Trust was financed with IMF resources from past gold sales (see Box 3.11). Under the original terms of the Trust Instrument, any surplus at the time of termination of the MDRI-I Trust was to be transferred back to the SDA. At the time of termination of the MDRI-I Trust in February 2015, an Executive Board decision provided for the destination for remaining balances to be transferred to the CCR Trust.
The MDRI-II Trust was financed by a direct, one-time transfer of SDR 1.12 billion from the PRGF-ESF Subsidy Account of the PRGT, representing bilateral resources from 37 contributors. In February 2015, the Executive Board amended the liquidation provisions of the Instrument to require that the default destination for remaining balances be transferred from the PRGT to the CCR Trust.