Publication - Update on the Financing of the Fund’s Concessional Assistance and Debt Relief to Low-Income Countries - April 17, 2017
EXECUTIVE SUMMARY
Low income countries (LICs) are adapting to a difficult environment. The economic environment remains challenging for Poverty Reduction and Growth Trust (PRGT)-eligible countries and the Fund’s concessional financing framework continues to adapt to evolving needs. In October 2016, the Executive Board approved measures to keep interest rates on concessional loans at zero, so long as global interest rates are low.
The IMF also clarified guidance on the application of PRGT-related policies following the 2015 enhancement of the financial safety net for LICs, while options to better assist countries confronting sudden balance of payments needs due to large natural disasters are under consideration.
Demand for PRGT resources has increased. Demand for concessional resources has exceeded historical averages in recent years, mainly in response to sustained low commodity prices and deteriorated global financial market conditions. Demand is expected to reach new highs in 2017 and longer-term estimates have been raised somewhat.
PRGT loan mobilization efforts are proceeding well. Finalized new loan contributions amount to more than half of the original SDR 11 billion mobilization target. Negotiations are still ongoing with the remaining participants that have expressed interest to date and the target could be exceeded if these negotiations are successfully concluded. The successful completion of the current mobilization effort would allow the PRGT to continue to provide concessional support into the next decade.
PRGT self-sustained capacity remains intact. Average annual lending capacity is estimated at SDR 1.29 billion, slightly higher than the target of SDR 1¼ billion and the estimate made a year ago, which largely reflects an increase in implicit subsidy contributions to the PRGT. While capacity estimates are sensitive to a variety of factors, they are robust under a number of elevated demand scenarios.
Countries are encouraged to fulfill past pledges. Notwithstanding payments during the past year, subsidy contributions remain below total pledged amounts from previous PRGT subsidy fund-raising rounds. Similarly, pledged contributions to the Catastrophe Containment and Relief Trust (CCRT) are less than two-thirds of the targeted amount of US$150 million and some of them remain outstanding. It is important that countries with outstanding pledges fulfill their commitments in support of the Fund’s concessional financing and debt relief operations, and for additional countries to contribute to the CCRT.
The number of protracted arrears cases has decreased. The recent settlement of overdue financial obligations by Zimbabwe is welcome and staff is monitoring closely the two remaining protracted arrears cases: Somalia and Sudan.
The Heavily Indebted Poor Countries (HIPC) initiative is largely completed. The three remaining HIPC-eligible countries are Eritrea with no outstanding obligations to the Fund, and Somalia and Sudan, with protracted arrears to the Fund. Additional resources would be required to finance the Fund’s participation in debt relief when Somalia and Sudan are ready to embark on the HIPC Initiative.
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