Frequently Asked Questions on the Poverty Reduction and Growth Trust (PRGT) Review

Q1. What is the role of the PRGT?

The Fund supports Low-Income Countries (LICs) through policy advice, capacity development and concessional financing to help countries implement policies and reforms that foster macroeconomic stability and growth.

The Fund provides concessional financial support to LICs through the Poverty Reduction and Growth Trust (PRGT), and for some countries this is blended with financing from the IMF’s General Resources Account (GRA).

PRGT loans are generally extended in the context of supporting well-designed economic programs that help catalyze significant additional financing from donors, development institutions, and the private sector.

Q2. What are the key changes under this review?

The IMF Executive Board approved on October 15, 2024, a comprehensive package of reforms and financing that aims to bolster the IMF’s capacity to support to Low-Income Countries (LICs) while restoring the self-sustainability of the Poverty Reduction and Growth Trust (PRGT).

LICs’ demand for IMF financing had reached unprecedented levels as a result of successive shocks over the past five year, and PRGT credit outstanding has tripled. As a result of these exceptional lending volumes and sharply higher interest rates, the PRGT faced an acute funding shortfall, with its “self-sustained” lending capacity falling to only SDR 1 billion per year, well below expected demand.

The reform and financing package includes several key elements:

• The PRGT will have a long-term self-sustained annual lending envelope of SDR 2.7 billion (US$3.6 billion), more than twice the envelope available before the Covid-19 pandemic. As the Fund’s financial support aims to help countries implement strong policies and sound institutions, PRGT lending will also help catalyze significant additional financing from public and private sources.
• The near-term lending volume is expected to be somewhat higher but decline from recent peaks observed in the aftermath of the Covid-19 pandemic, as countries recover and rebuild buffers.
• Access policies have been adjusted to calibrate Fund financial support to the individual needs of LICs. Effective January 1, 2025, the access norm, which guides the level of access of Extended Credit Facility (ECF) and Stand-by Credit Facility (SCF) arrangements, while not being a floor nor a ceiling, will be set at 145 percent of quota. Access limits will be kept at their current levels of 200 percent of quota annually, and 600 percent of quota in total, maintaining the higher levels that were decided as a temporary measure for 12 months by the Board in December 2023. The space between the norm and the limits provides significant flexibility to help countries with higher needs.
• Safeguards have been strengthened and streamlined, centered around the access norm, and reflecting the level of risks associated with higher PRGT credit exposure and elevated macroeconomic vulnerabilities in many LICs.
• Effective May 1, 2025, a new interest rate mechanism will apply to new PRGT lending. Outstanding credit under financing approved before that date, as well as new disbursements under existing arrangements, including potential augmentation of access, will remain subject to the current zero interest rate. The new mechanism will set interest rates at zero for the poorest PRGT-eligible members (around half of all LICs), and a modest, but still concessional, interest rates for the others. For details, see Question 4 below.
• To fund the higher lending envelope and ensure the financial viability of the PRGT, the IMF membership agreed on a framework to distribute IMF net income and/or reserves to facilitate generation of SDR 5.9 billion, or about US$ 8 billion, in additional subsidy resources over the next five years. This was made possible by the historically strong financial position of the IMF.

Q3. Will the PRGT eligibility framework, or the volumes of financing, be more restrictive?

Countries currently eligible for borrowing under the PRGT will remain eligible after this review. The IMF Executive Board assessed the PRGT eligibility framework as broadly appropriate, with marginal adjustments. In application of this framework and recognizing elevated uncertainties regarding the economic outlook for LICs, no country was proposed for graduation at this point.

The long-term self-sustained annual PRGT lending envelope of SDR 2.7 billion (US$3.6 billion), with somewhat higher volumes in the next few years, has been calibrated to allow the Fund to continue providing adequate concessional support to LICs within the augmented PRGT resource envelope. Annual demand for PRGT financing is expected to decrease from recent historic peaks, as countries gradually recover from a series of major global shocks, but remain well above pre-pandemic levels as the average frequency and magnitude of shocks affecting LICs’ external positions are likely to remain higher than before the COVID-19 pandemic.

Access to IMF resources will continue to be determined on a case-by-case basis, using standard criteria: (i) the size of the balance of payment need; (ii) the strength of the adjustment program; (iii) the capacity to repay; and (iv) IMF credit outstanding and track record of past use. The access norm provides a further guide, while not being a ceiling or floor. Key features of the “blending policy” remain in place: countries required to blend will continue to benefit from a “blend” financing of 1:2 PRGT:GRA; other countries will continue to have access to concessional financing under the PRGT without a requirement to blend, with the poorest LICs (around half of all PRGT-eligible countries) benefitting from the absence of a cap on such financing.

Q4. How will the new interest rate mechanism work?

The proposed tiered PRGT interest rate structure complements the existing tiered PRGT access structure under the PRGT/GRA blending policy to ensure a coherent framework where PRGT resources and the most favorable lending terms are focused on the poorest LICs. The tiered interest rate structure will also act as an automatic stabilizer to reduce the pressure on PRGT resources coming from the subsidization of interest rates.

The interest rates mechanism is aligned with the PRGT/GRA blending and will work as follows: the poorest PRGT-eligible countries will benefit from interest-free loans under the PRGT, while the others will be charged a modest, but still concessional, interest rate tied to the SDRi.

Specifically, about half of low-income countries fall into the group that will be charged a zero interest rate based on their low per capita GNI. The remaining PRGT-eligible members fall into two groups: (1) countries that do not face elevated debt vulnerabilities that limit their access to international financial markets will be charged 70 percent of the SDRi; (2) countries that face elevated debt vulnerabilities and that (i) face limited access to international financial markets or (ii) are a small or micro-state will be charged 40 percent of the SDRi.

These new PRGT lending terms preserve a significant degree of concessionality for beneficiary countries, below GRA lending terms and well below prevailing and expected market rates, with limited impact on members’ financial position. Thanks to the reform package, the substantially increased volume of PRGT financing available to these countries will outweigh the impact of the modest interest rate, when compared to a scenario without the reform.

The new interest rate mechanism will become effective from May 1, 2025. It will apply only to new ECF and SCF arrangements as well as outright disbursements under the RCF approved from that date onwards. Accumulated credit outstanding and arrangements approved before that date (as well as any subsequent augmentations) will continue to be subject to the current zero interest rate.

Criteria for Country Groupings, PRGT Access, and PRGT Interest Rates ^1/

1/ Criteria set by the Fund’s (unchanged) blending policy governing access to PRGT resources.

Q5. How does the reform package envisage filling the PRGT’s financing gap?

The PRGT’s funding gap will be addressed through a combination of changes in lending policies, bilateral contributions, and a framework for the use of IMF internal resources.

The bulk of the new funding would come from a framework for distributing IMF net income and/or reserves over a period of about 5 years to facilitate the generation of SDR 5.9 billion (about $8 billion) (in net present value terms) in additional PRGT subsidy resources.

The distribution framework, approved by consensus of the entire IMF membership, is intended to boost concessional lending and allow the Fund to continue supporting LICs in their pursuit of stability, growth, and poverty reduction.