Proposal to Enhance Fund Support for Low-Income Countries Hit by Public Health Disasters—Proposed Modifications

Proposal to Enhance Fund Support for Low-Income Countries Hit by Public Health Disasters

Abstract

Proposal to Enhance Fund Support for Low-Income Countries Hit by Public Health Disasters

Staff is proposing changes to the proposals in Proposal to Enhance Fund Support for Low-Income Countries Hit by Public Health Disasters and the associated decisions (Decisions) in response to comments and feedback received from Executive Directors on the original proposals.

The proposed changes relate to the exceptional circumstances under which the Fund could, where warranted, provide grant assistance in excess of 20 percent of quota to members who meet the qualifying criteria for support under the Catastrophe Containment window of the proposed Catastrophe Containment and Relief Trust.

The changes relate to the first and third of the three exceptions specified in paragraph 36 of Proposal to Enhance Fund Support for Low-Income Countries Hit by Public Health Disasters (Attachment I) as follows:

  • As to the first exception—where debt service obligations on the member’s eligible debt to the Fund constitute an exceptional burden on the near-term external payments position of the country—it is now clarified that any decision regarding the provision of grants in excess of 20 percent of quota would need to take into account the scope and merits of addressing the exceptional burden through additional concessional lending.

  • As to the third exception—where the member country is rated as being at high risk of debt distress, or in debt distress—it is now proposed that, where the Managing Director sees potential merit in the Fund providing grants in excess of 20 percent of quota, the Managing Director will consult with the Executive Board, meeting in an informal session, on the case for doing so before finalizing a formal proposal for consideration by Executive Board.

In addition, the proposed decisions circulated on Friday, January 30 incorporated one change from the text of Proposal to Enhance Fund Support for Low-Income Countries Hit by Public Health Disasters: specifically, in cases where additional grant support is deemed to be warranted for countries rated at high risk of/in debt distress, additional support would be provided in the amount needed to ensure that the package of Fund support linked to the epidemic has a grant element of 80 percent (rather than “not exceeding 80 percent”, as in the original).

Given the changes proposed by staff, the amount of support to be provided by the Trust (originally outlined in paragraph 36 of Proposal to Enhance Fund Support for Low-Income Countries Hit by Public Health Disasters) can now be described as follows:

The amount of grant support provided from the CCR Trust would be set at 20 percent of the member’s quota, subject to the qualifications stated below (see Box 4 for examples of the application of the policy):

  • The Executive Board may decide, in circumstances where debt service obligations to the Fund constitute an exceptional burden on the near-term external payments position, to increase the amount of grant support provided to a level not exceeding the full amount of debt service falling due during the ensuing two-year period.1 Any such decision will need to take into account the scope and merits of addressing the exceptional burden through additional concessional lending.

  • The Executive Board may decide, in circumstances where there is an international effort to provide debt service flow relief to the country to ease near-term balance of payments pressures, to increase the amount of grant support provided to a level not exceeding the full amount of debt service falling due during the ensuing two-year period, provided that there is a strong expectation that such a move would help catalyze support to the member from official bilateral creditors on similar terms.2

  • Where countries are rated at high risk of debt distress, or in debt distress, under the joint Bank-Fund Debt Sustainability Framework—and hence already face a difficult balance of payments position over the medium-term—, the Executive Board may decide to authorize grant support in excess of 20 percent of quota, if warranted to prevent a significant deterioration of debt indicators (relative to pre-epidemic projections) resulting from the country taking on new debt to tackle the epidemic. The additional support provided would be the amount needed to ensure that the package of Fund support linked to the epidemic has a grant element of 80 percent.3 In cases where Management sees merit in providing such additional support, it would consult informally with the Executive Board on the specific case for doing so before finalizing a formal proposal for consideration by the Board.

  • Provision of grants to meet specific debt service obligations would be conditional upon the availability of resources in the CCR trust at the time of the Board decision; as noted above, the grants would be used to immediately pay off an equivalent amount of debt service obligations to the Fund.

  • The level of grant support provided would not exceed the level of eligible Fund debt outstanding.

1

The staff report supporting the request for assistance under the CCR would need to justify the provision of this additional support, and the scale of the additional support being requested, by reference to such factors as a) the projected drain of Fund debt service payments on the level of reserves, b) the share of Fund debt service (net of grant support) in the member’s total official debt service payments, and c) the scope and economic merits for providing increased loans under PRGT facilities to smooth any bunching of repayments to the Fund.

2

The additional relief would be the full amount of debt service falling due to the Fund within the period during which bilateral official creditors were expected to provide debt relief, up to a two-year maximum.

3

For the purposes of calculating the grant element, the package of Fund support linked to the epidemic is defined to include a) any additional loan funding, relative to pre-epidemic plans, made available to address the balance of payments needs created by the epidemic plus b) any grant funding made available from the CCR Trust. The scale of additional grant support provided will depend on the specific mix of new lending adopted and on the structure of debt service obligations.