IMF lending capacity shrinking
ISLAMABAD, Sept 15: The concessional lending capacity of International Monetary Fund (IMF) is likely to decline after 2014-15 as low income countries will remain exposed to global risks and volatility, says a new report issued by the fund.
An IMF review of facilities for low-income countries while looking at the challenges ahead, says that demand for IMF concessional loans is projected to substantially outstrip available resources from 2015 onward.
A framework for the longer-term sustainability of the Poverty Reduction and Growth Trust (PRGT) will therefore require choices to be made on how to secure additional resources for the trust.To fill the gap between projected demand and lending capacity, the study suggests use of gold sale windfall profits, saying that if the remaining windfall profits from gold sale which is expected to be (special drawing rights) SDR1.1 billion were used to generate contributions to replenish the subsidy resources.
This would raise the annual self-sustaining lending capacity from about SDR0.7 billion to SDR1.1 billion – close to the lower end of projected demand.
Unless new concessional resources can be secured, access to the PRGT would need to be sharply curtailed after 2014, jeopardizing the fund’s ability to provide adequate support to low income countries, the study says.
As intended by the 2009 reform, the use of stand-alone Stand-by arrangements (SBAs) among low income countries’ (LIC) has faded in recent years, while use of blending has increased. Some of the LICs that had previously relied on stand-alone SBAs graduated from PRGT eligibility in 2010 include Angola, Pakistan, and Sri Lanka.
The report says that the demand for IMF support through its LIC facility has been high, and shifted to a more diverse range of tools, with greater use of short-term and emergency financing facilities, blending, and augmentations. Use of facilities remains greatest among the poorer and heavily indebted poor countries eligible LICs, and has increased strongly for small and fragile economies.
New concessional financing commitments peaked at nearly $3.8 billion at the height of the crisis in 2009, almost four times the historical average. In 2010 and 2011, annual commitments averaged SDR1.2 billion, well above both the historical average and the Fund’s longer-term concessional lending capacity. By contrast, official development assistance from other sources has remained relatively stable.
In 2009, the IMF board endorsed a LIC financing package to more than double the fund’s concessional lending capacity to SDR11.3 billion for the period 2009-14.
A preliminary assessment of experience since 2009 facilities reform suggests that IMF has largely been able to provide flexible and tailored support to low income countries, which helped them navigate the global financial crisis.
The Fund’s sharp increase in financial assistance during the crisis helped relax countries’ liquidity constraints and facilitated a rapid recovery.