Lending

IMF financing helps member countries tackle balance of payments problems, stabilize their economies, and restore sustainable economic growth. It can also be made available in response to natural disasters or pandemics. The IMF further provides precautionary financing to countries with sound policies that may have some remaining vulnerabilities to help prevent and insure against future crises, and it continues to enhance the tools available for crisis prevention. Finally, through the RST, which was established during FY 2022 and is expected to become operational by the end of 2022, the IMF will provide affordable long-term financing to help countries build resilience to external shocks and ensure sustainable growth, contributing to their long-term balance of payments stability. Unlike development banks, the IMF does not lend for specific projects.

In broad terms, IMF lending falls into two categories: loans at interest rates determined by an average of those prevailing among the world’s main currencies and loans to low-income countries on concessional terms. Concessional loans currently bear no interest. The RST will be a third lending category and encompass a tiered interest rate structure differentiated across country groups.

From the outset, the IMF has responded to the COVID-19 pandemic with unprecedented speed and magnitude, through emergency financing, program lending, and debt relief to its poorest members.[1]

In FY 2022, the IMF further boosted global liquidity and resilience through the largest-ever SDR allocation—equivalent to $650 billion—and provided further debt service relief to its poorest and most vulnerable members hit by catastrophic natural disasters or public health disasters via the CCRT.

As global growth recovered during 2021, demand for IMF financing gradually shifted from emergency financing triggered by urgent, pandemic-related balance of payments needs to upper-credit-tranche (UCT)-quality arrangements, including to deal with scarring from the pandemic. Growth is expected to slow during 2022, largely as a consequence of COVID-19 variants and the war in Ukraine, which have led to new lending requests, including for emergency financing.

During FY 2022, the Executive Board modified the lending toolkit, including unwinding some of the temporary measures taken in response to the pandemic.[2] In July 2021, the IMF’s Executive Board approved an increase in both the annual and the cumulative access limits on concessional lending through the PRGT to fully align them with those in the GRA.[3] In December 2021, the Executive Board let lapse, as planned, the temporary increase in the annual access limit for the GRA that triggers application of the exceptional access framework. At the same time, the Executive Board approved 18-month extensions (through the end of June 2023) of the temporary increases to the cumulative access limits under its emergency financing instruments, the Rapid Credit Facility (RCF) and the Rapid Financing Instrument (RFI), in order to ensure that member countries have continued access to the IMF’s emergency financing should urgent balance of payments needs arise when a UCT-quality arrangement is unnecessary or infeasible (see Tables 2.1 and 2.2).

In March and July 2021, enhanced safeguards were endorsed in recognition of the need for stronger protection to mitigate risks associated with higher IMF lending. These apply to requests for new PRGT arrangements or augmentations above certain access thresholds and for countries at high risk of or in debt distress. Similar safeguards will also apply to RST lending.

In March 2022, the Board approved a new comprehensive strategy to strengthen IMF support to fragile and conflict-affected states, which as noted earlier constitute approximately one-fifth of the IMF’s membership. Fragility and conflict are often exacerbated by climate change, by food insecurity, by gender inequality, and recently by the economic repercussions of COVID-19 and the spillovers from the war in Ukraine. The strategy advocates a long-term Country Engagement Strategy for each country based on policy advice carefully tailored to factor in the specific drivers of fragility, economic and social dynamics, and constraints to reform in each country, coupled with stronger coordination with other partners and donors. For example, to enhance cooperation and improve tailoring and prioritization of policy advice and capacity development, the IMF will adopt the World Bank criteria and methodology for defining fragile and conflict-affected states, harmonizing both organizations’ lists of countries considered to be in this category.

Between May 1, 2021, and April 30, 2022, the IMF’s financial assistance focused on the following areas:

1. Emergency financing under the RFI and RCF

   The IMF received, and the Executive Board approved, requests for emergency financing from five countries (about $2.4 billion, of which $1 billion was disbursed to three low-income countries) (see Tables 2.1 and 2.2).

2. Building on existing lending arrangements

   The IMF also augmented existing arrangements to accommodate urgent new financing needs in the context of ongoing policy dialogue. The Executive Board approved augmentation of arrangements with two members.

3. New lending arrangements, including precautionary arrangements

   The Executive Board approved 17 new nonprecautionary IMF arrangements with 14 countries. These included a large arrangement with Argentina, which was approved in March 2022. In addition, two precautionary arrangements—two Flexible Credit Lines—were made available to members.

4. Debt service relief

   The CCRT allows the IMF to provide grants to pay debt service owed to the IMF for eligible low-income member countries that are hit by catastrophic natural disasters or battling public health disasters. The CCRT was enhanced in March 2020 and was subsequently used to provide grants for debt service relief to the IMF’s poorest members affected by the COVID-19 pandemic. In total, 31 eligible countries have received debt service relief of close to SDR 690 million in five tranches, the final two of which were approved by the Executive Board in FY 2022: October 6, 2021, and December 15, 2021 (see Table 2.3).[4]

5. Debt relief under the HIPC Initiative

   On March 25, 2020, following Somalia’s clearance of its arrears to the IMF, the Executive Board determined that Somalia qualified for debt relief under the enhanced HIPC Initiative[5] and that Somalia had reached its HIPC Initiative decision point. By the end of April 2022, the Executive Board had approved two interim assistance payments to Somalia for a total of SDR 1.791 million to cover its financial obligations falling due during the periods March 25, 2020–March 24, 2021, and March 25, 2021–March 24, 2022. As mentioned in Part 1, on June 29, 2021, following Sudan’s clearance of its arrears to the IMF, the World Bank, and the African Development Bank, the Executive Boards of the IMF and the World Bank determined that Sudan qualified for debt relief assistance under the enhanced HIPC Initiative and had reached its decision point under the initiative. On the same date, the Executive Board approved an interim assistance payment to Sudan of SDR 0.524 million to cover its financial obligations falling due between June 29, 2021, and June 28, 2022.