Engagement with IMF Helps Poorer Countries Through Global Crisis

IMF-backed programs helped poorer countries navigate global financial crisis

Over longer term, program engagement helped raise growth, reduce poverty, boost resilience to shocks

Report warns of sharp potential drop in IMF lending capacity after 2014

The report, covering more than 70 low-income countries eligible to receive concessional IMF resources, also presented new evidence that IMF support had played a positive role over the longer term in raising growth, reducing poverty, and strengthening poorer countries’ resilience to shocks.

The report, which was discussed by the IMF Executive Board on September 6, also presented proposals to address a sharp prospective drop in the IMF’s concessional lending capacity after 2014, and ensure that resources are used efficiently by tailoring them better to countries’ needs. IMF staff will prepare two further reports, with recommendations on how to implement these proposals, based on Directors’ feedback.

Experience with new instruments

The 2009 reforms aimed to close gaps and to create a streamlined architecture of facilities that is better tailored to the needs of low-income countries.

Subsequently, demand for support from the IMF for countries’ programs has been high, and shifted to a more diverse range of facilities (see Chart 1). The use of facilities has been greatest among the poorer low-income countries and those eligible for the Heavily Indebted Poor Countries debt relief program and has increased strongly for small and fragile economies.

Many members utilized the increased operational flexibility under the 2009 reforms, but recent experience has highlighted a few areas where streamlining and greater flexibility could enhance the IMF’s ability to respond effectively to members’ needs.

Impact of IMF engagement

The report presented new empirical evidence that points to two possible channels through which IMF support may have helped low-income countries weather the recent global financial crisis.

First, longer-term IMF support via successive medium-term programs—primarily under the Extended Credit Facility and its predecessors, and more recently under the Policy Support Instrument—seems to have helped low-income countries in raising longer-term growth, reduce poverty, raise social spending, and gradually building the macroeconomic buffers and institutional capacity needed for a robust policy response to the crisis (see Chart 2).

“Our interpretation of these results is that...