V Recent Developments in Financing from Multilateral Institutions
- International Monetary Fund
- Published Date:
- January 1994
Multilateral institutions, including the IMF, have made substantial contributions to the financing of developing countries over the past decade. Their continued assistance has been a critical element in supporting the efforts of debtor countries implementing programs of adjustment and structural reform. Three trends stand out, which parallel those for official bilateral creditors. In the face of sharp reductions in financing from nonofficial sources, multilateral institutions have been providing an increasing share of new disbursements, especially to the low- and lower middle-income countries with debt-servicing difficulties. As a result, multilateral debt has increased rapidly over the past decade both in absolute terms and as a share of total debt. Second, the increase in multilateral lending—particularly policy-based lending in support of adjustment programs—has been most pronounced for countries that established a strong record of sustained policy performance. Third, multilateral institutions have increasingly adapted the terms of their lending to country circumstances with a marked shift toward concessional lending to low-income countries. The aggregate debt-service obligations of these countries to multilateral have therefore increased only modestly despite the rapid rise in the share of their debt owed to multilateral.
In addition to the IMF, which is a monetary rather than a development institution, the most important multilateral lenders are the World Bank, comprising both the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA); the three main regional development banks: the African Development Bank (AfDB), the Asian Development Bank (AsDB), and the Inter-American Development Bank (IDB); and a number of European multilateral financial institutions primarily associated with the European Community, such as the European Investment Bank and the Council of Europe.31 Other multilateral lenders include institutions based in Arab countries (e.g., the Arab Fund for Economic and Social Development and the OPEC Fund), and a large number of smaller regional organizations. Financing from multilateral institutions has been provided primarily in the form of loans, both nonconcessional and concessional (see Table A15).32
Lending by multilateral institutions is concentrated among the largest ten borrowers who together account for almost 50 percent of total multilateral exposure.33 The three largest borrowers at the end of 1991 were India ($27.4 billion), Mexico ($22.2 billion), and Indonesia ($16.1 billion).34
Developments in Multilateral Debt
The total multilateral debt of all developing countries increased from $62 billion in 1980 to an estimated $270 billion by the end of 1992, (Chart 9 and Table A15). The World Bank is the most important multilateral creditor, and its loans constitute more than half of total multilateral debt. The total stock of developing country liabilities to the World Bank reached $150 billion at the end of 1992. Within this total, the share of concessional (IDA) loans has increased to about 35 percent in 1992, with the share being much higher for the low-income countries.
Chart 9.Structure of Multilateral Debt of All Developing Countries by Institution, 1980–921
Sources: World Bank Debtor Reporting System; and IMF staff estimates.
Note: IBRD denotes International Bank for Reconstruction and Development; IDA denotes Internationa] Development Association.
1 Data for 1992 are preliminary.
The share of the regional development banks in the stock of multilateral debt has risen from around 14 percent in 1987 to 21 percent in 1992. With a loan portfolio of $24 billion in 1992, the IDB remains the largest of the regional development banks in terms of debt outstanding and accounted for around 9 percent of total multilateral debt.35
However, the expansion of lending has been more rapid in the other two major regional development banks. Both the AsDB and the AfDB have doubled their share in total multilateral debt since 1987. At the end of 1992, the outstanding loan portfolio of the AsDB reached $21 billion,36 while that of the AfDB amounted to $12 billion.37 There has also been a significant increase in disbursements from multilateral institutions associated with the European Community over the past few years, in part reflecting larger assistance to Central and Eastern Europe.
A rapid increase in overall multilateral lending occurred during the first half of the 1980s when the developing countries were facing a particularly difficult situation (Table 15). Net lending averaged nearly $16 billion from 1990–92 compared with an average of $7.5 billion from 1987–89. Rising gross disbursements (which averaged $37 billion from 1990–92 compared with $28 billion in the previous three years) offset rising amortization payments. The continued increase in net financial support from multilateral institutions over this more recent period reflects largely the rapid expansion in lending to countries that have maintained their adjustment efforts. By contrast, countries that failed to implement consistently appropriate policies generally experienced a decline in multilateral lending. The link between policy performance and multilateral lending has been particularly marked in the case of policy-based adjustment lending, which has become a major component of multilateral assistance over the past decade. The IMF has always assisted countries in the design of comprehensive adjustment programs and made financial support contingent on the adoption and implementation of such programs. While project financing remains the main form of World Bank lending, the Bank has also provided substantial amounts through structural and sector adjustment loans in support of policy reforms; such loans accounted for over 25 percent of the World Bank’s new commitments from 1986–92 (Table A18). The regional development banks have also provided policy-based financial assistance, though on a smaller scale, and have tended to follow the IMF and World Bank’s lead.
|North Africa and the Middle East||Gross||1,444||2,422||2,209||3,050||2,463||3,329||3,230|
|By debt-servicing record|
|Selected ESAF countries3||Gross||1,343||2,251||2,374||2,151||2,548||2,600||2,563|
The continued large-scale assistance over recent years in support of structural adjustment policies has helped to sustain the process of reform in a wide range of countries, and contributed to bringing a number of middle-income rescheduling countries to the point where they regained access to international capital markets. The IMF, the World Bank, and the IDB have also provided substantial support for commercial bank debt restructurings. Moreover, the World Bank’s IDA debt-reduction facility has assisted low-income countries reduce debts to commercial banks and suppliers at steep discounts.38
Support from multilateral institutions has also played an important role in countries that have avoided debt-servicing difficulties (e.g., Bangladesh, India, Indonesia, Pakistan, and Tunisia). Financing packages supported by the multilateral institutions were decisive in assisting some countries that experienced a marked reduction in private lending avoid debt renegotiations (for example, Colombia in the mid-1980s, and Hungary in the late 1980s).39 Similarly, multilateral financial assistance, including that through quick-disbursing adjustment loans, enabled a number of low-income countries that have generally implemented appropriate policies on a sustained basis to avoid debt reschedulings (notably, Burundi, and Ghana).
As a result of the rapid expansion of lending, the share of multilateral debt in total debt for all developing countries has been rising (Charts 9 and 10). This is particularly the case for rescheduling low-and lower middle-income countries, and in comparison to private creditors. In part, this reflects, in the case of middle-income countries, debt-reduction operations by commercial banks.
Chart 10.External Public Debt by Creditor. 1980–91
Sources: World Bank Debtor Reporting System; and IMF staff estimates.
Lending to Low-Income Countries
During the recent past, multilateral lending to low-income countries (both rescheduling and non-rescheduling) has grown particularly rapidly as lending has expanded to countries implementing adjustment programs. In recognition of the deep-rooted balance of payments difficulties of many of these countries, and especially the low-income rescheduling countries, more lending was on concessional terms. This has been particularly marked in the case of the IMF, as financial support for the low-income countries has been provided since 1987 nearly exclusively in the form of disbursements under SAF and ESAF arrangements.
The World Bank converted many of the low-income countries to IDA-only status in the early 1980s; this prevented a buildup of debt on nonconcessional terms to the World Bank. The increase in the overall concessionality of World Bank lending during the 1980s is reflected in a changing composition of developing country debt to the World Bank (Chart 11). For example, within the group of low-income rescheduling countries, the share of IDA in the stock of debt owed to the World Bank increased significantly from 74 percent in 1987 to 90 percent in 1992 (Table A18). For selected countries that had ESAF arrangements with the IMF, and where sustained implementation of policy reforms was supported with increased lending on concessional terms, the share of IDA in total World Bank debt increased from 87 percent in 1987 to 95 percent in 1992.40 The World Bank has also provided relief on the outstanding IBRD debt service for IDA-only countries through its Fifth Dimension facility. This facility has in recent years covered nearly 100 percent of IBRD interest payments due by IDA-only countries that have an adjustment program in place.41 There has also been more concessional lending from other multilaterals, in particular from the African Development Fund and the European institutions. Some multilateral institutions, however, have continued to provide resources in the form of nonconcessional lending. Chart 12 illustrates the rapid growth of highly concessional lending to the low-income rescheduling countries. It also shows the differences among multilateral institutions in the degree of concessionality.
Chart 11.Structure of Multilateral Debt by Lending Institution, 1980–92
Sources: World Bank Debtor Reporting System; and IMF staff estimates.
Note: IBRD denotes International Bank for Reconstruction and Development; IDA denotes International Development Association.
Chart 12.Low-Income Rescheduling Countries: Concessionality of Multilateral Debt, 1980–92
Sources: World Bunk Debtor Reporting System: and IMF staff estimates.
Note: IBRD denotes International Bank for Reconstruction and Development; and IDA denotes International Development Association.
Despite the rapid increase in the multilateral debt of the low-income countries, debt-service obligations have increased only modestly in recent years mostly as the result of the marked shift toward concessional assistance, especially on the part of the IMF and the World Bank. For low-income rescheduling countries as a group, the debt-service ratio on multilateral debt, including the IMF, has remained at around 10 percent of exports of goods and services (upper panel of Chart 13). However, these aggregate figures mask a wide range of country circumstances (Table A20).42 For low-income countries that avoided debt reschedulings as a group, debt-service ratios have been higher over most of the period with a peak of over 15 percent in 1987, followed by a steady decline to some 9 percent in 1992 (lower panel of Chart 13).
Chart 13.Low-Income Countries: Debt-Service Payments on Multilateral Debt, 1984–921
New disbursements from multilateral institutions exceeded by a wide margin debt-service payments on multilateral debt for both rescheduling and non-rescheduling low-income countries. For the low-income rescheduling countries as a group, total multilateral disbursements (excluding the IMF) over the period 1989–91 were equivalent to some 23 percent of exports of goods and services compared with debt-service payments (including the IMF) of around 10 percent (see Table 14). Disbursements, including those from the IMF, averaged $3 billion a year from 1989–91 (Table A20). Thus, the proportion of multilateral debt on concessional terms rose from around one half in 1984 to three fourths in 1992 (Chart 12, Table 16, and Table A22). The nonreschcduling low-income countries witnessed a similar pattern of disbursements (Table A22); the percentage of concessional debt also rose from 57 percent in 1984 to 76 percent in 1992 (Tables 17 and A23).43
|Percentage of Total|
Multilateral Debt on
|Low-income rescheduling countries||52.4||76.0|
|Selected low-income countries that avoided reschedulings||57.1||76.4|
|Lower middle-income rescheduling countries||29.3||18.2|
The recent experience of low-income countries reveals the strong link between policy performance and external financial support. Countries that achieved improvements in their macroeconomic and structural policies continued to receive significant net disbursements from the multilateral institutions on increasingly concessional terms. In contrast, countries with an uneven record of policy implementation (some of which faced very difficult economic and political situations) experienced difficulties in obtaining financial support. More generally, both official multilateral and bilateral creditors and donors have provided increased levels of financial assistance where sustained adjustment and reform efforts by the debtor countries have provided assurances that resources would be efficiently used.
Over the next several years, the EBRD can also he expected to become a significant lender.
Grants account for a relatively small share of total financing from these institutions. Grants, including those for humanitarian and technical assistance, have been provided mostly by the United Nations Development Program (UNDP) and various other agencies of the United Nations.
The statistical information used in this section is derived mostly from the World Bank’s Debtor Reporting System, supplemented with data from the OECD report Geographical Distribution of Financial Flows to Developing Countries, and Fund staff estimates.
The next seven largest borrowers were Brazil ($12.3 billion), Turkey ($10.1 billion), Pakistan ($9.1 billion), Argentina ($7.9 billion), the Philippines ($7.8 billion), Bangladesh ($7.7 billion), and China ($7.6 billion).
See Inter-American Development Bank, Annual Report 1992 (Washington, 1993).
See Asian Development Bank, Annual Report 1992 (Manila. 1993).
These data also include the African Development Fund. See African Development Bank, Annual Report 1991 (Dakar, 1992).
For details on commercial bank debt-reduction packages and the IDA debt-reduction facility see Private Market Financing for Developing Countries, World Economic and Financial Surveys (Washington: International Monetary Fund, December 1993).
It is noteworthy that some countries have recently reduced reliance on multilateral lending (e.g., Colombia, Korea, Swaziland, Thailand), either because of expanding access to private financing on appropriate terms, or a declining overall reliance on external saving.
These countries, which include Bangladesh, Bolivia, The Gambia, Ghana, Guyana, Lesotho, Malawi, Mozambique, Senegal, Sri Lanka, and Togo, were identified in a recent review by IMF staff as having made visible progress toward external viability. See, Susan Schadler, and others, Economic Adjustment in Low-Income Countries: Experience Under Enhanced Structural Adjustment Facility, Occasional Paper, No. 106 (Washington: International Monetary Fund, September 1993).
Supplementary fast-disbursing IDA credits are made available under the Fifth Dimension facility to IDA-only countries with outstanding IBRD obligations (i.e., “reverse graduates”), in order to ease their debt-service burdens. To be eligible, countries must be implementing an IDA-supported program of structural adjustment. The total amount of such financing available each year is decided by IDA’s Executive Board in the context of allocating IDA reflow resources. Fifth Dimension resources are prorated among eligible countries; disbursements are made once a year alongside the release of a tranche under an adjustment credit. (If the tranche release is delayed, the supplementary credit may be carried forward for up to 12 months.)
It should also be noted that these figures are based on payments actually made and thus do not take into account arrears accumulation.
By contrast, the percentage share of concessional debt for lower middle-income rescheduling countries declined from 29 percent in 1984 to 18 percent in 1992 (Tables 17 and A24).