The International Monetary Fund (IMF) has announced the approval of a significant reform and funding package worth Special Drawing Rights (SDR) 2.7 billion (approximately $3.6 billion) aimed at supporting low-income countries (LICs). The package, which was approved by the IMF’s Executive Board, focuses on strengthening the Fund’s concessional lending facilities and ensuring long-term financial assistance for LICs.
According to the IMF, the reforms are critical to addressing the growing needs of LICs, especially in the aftermath of the COVID-19 pandemic and other economic shocks. These reforms were detailed in the staff paper, “2024 Review of the Poverty Reduction and Growth Trust (PRGT) Facilities and Financing—Reform Proposals.”
The IMF explained that its lending to low-income nations has risen dramatically since 2020, with annual commitments now averaging SDR 5.5 billion, a sharp increase from the previous decade’s average of SDR 1.2 billion. However, this rapid escalation has led to concerns about the sustainability of the PRGT, with a projected significant funding shortfall if reforms are not implemented. The IMF warned that the PRGT’s self-sustained lending capacity could fall to around SDR 1 billion annually by 2027, far below the expected demand.
In response to these challenges, the IMF’s Executive Board endorsed a long-term annual lending envelope of SDR 2.7 billion, more than double the pre-pandemic capacity, aimed at ensuring that LICs continue to receive critical balance of payments support. The approved reforms also include policy changes tailored to the increasing economic diversity among LICs, including a tiered interest rate mechanism designed to ensure that the poorest nations continue to benefit from interest-free lending while better-off LICs are charged a modest concessional interest rate.
The reforms also establish access norms at 145 percent of quota to guide future lending volumes while keeping annual and cumulative access limits at 200 and 600 percent of quota, respectively. Safeguards will be strengthened to maintain efficient risk management in light of the increased lending volumes.
The IMF also highlighted a successful bilateral fundraising initiative, where member nations agreed on a framework to generate PRGT subsidy resources internally. An estimated SDR 5.9 billion (approximately $8 billion) is expected to be raised through the distribution of General Resources Account (GRA) net income and reserves over the next five years, supplemented by additional bilateral contributions and other savings measures.
This new funding package and policy overhaul aim to position the IMF to continue playing a vital role in supporting LICs as they navigate ongoing economic challenges, ensuring that they have access to the financial resources needed to maintain economic stability and promote sustainable growth.