Delivering on Change
| Author | Edward Gemayel/Samar Maziad |
| Position | Economists in the IMF’s Strategy, Policy, and Review Department |
| Pages | 51-52 |
Page 51
The IMF has created a new support framework for the world’s low-income countries
AS THE global financial crisis has swept from developed to developing countries, the IMF has undertaken an unprecedented reform of its policies toward low-income countries, culminating in the announcement of significant new resources underpinned by new lending instruments.
This wide-ranging effort has transformed the Fund’s relationship with member countries that are striving to overcome the impact of a crisis not of their own making. The initiative reflects close consultation with low-income countries and responds to the call by the heads of state of the Group of Twenty (G-20) industrial and emerging market economies for swift policy action to meet the needs of the developing world.
The reform effort has sharply increased the financial resources available to low-income countries, overhauled the Fund’s lending framework, streamlined loan conditionality, and reduced to zero the interest charges on concessional IMF loans for low-income countries through 2011, while permanently increasing concessionality of Fund lending to those countries.
Over the past two decades, low-income countries have made extensive use of the IMF’s concessional facilities, and most have achieved marked improvements in macroeconomic performance and high rates of growth. In fact, of the 78 countries currently eligible for the Poverty Reduction and Growth Facility (PRGF), four-fifths have received Fund financing, and three-quarters have been supported under the PRGF or its predecessor. Over the period from 2000–07, low-income countries with sustained Fund engagement (of 10 years or more) witnessed high real GDP growth of 5.3 percent on average, supported by inflows of foreign direct investment of 4.2 percent of GDP and aid flows of 12 percent of GDP, while maintaining average inflation at 6.9 percent and average debt burden below 40 percent of GDP in 2007.
But the current global financial crisis is threatening to erode the hard-won gains of many low-income countries. This crisis, which originated in advanced economies and then spread to emerging countries, is now—through its third wave—threatening the remarkable economic achievements many low-income countries have made over the past decade. Earlier this year, an IMF study on the impact of the crisis on low-income countries warned that the financial crisis, combined with the...
To continue reading
Request your trial