IMF Gathers Ideas on Support for Low-Income Countries
Low-income countries (LICs) are becoming more integrated and exposed to global markets and their needs for IMF support are increasingly diverse. The IMF is reviewing its toolkit of lending instruments for poorer countries and its policy on debt limits in IMF programs with a view to ensure continued effectiveness in supporting LICs.
Reform of LIC lending
In 2009, the IMF undertook a comprehensive reform of its facilities for low-income countries to make its financial support more flexible and tailored to the diverse needs of LICs, as part of the IMF’s overall response to the global crisis.
Access to concessional resources was doubled, interest rates lowered to zero, and new flexible facilities introduced to help countries deal with volatility and shocks, in particular through the creation of a Rapid Credit Facility (RCF) and the Standby Credit Facility (SCF).
The IMF quadrupled its concessional financial support in 2009, which helped low-income countries navigate the crisis, including through a countercyclical policy response that allowed them to preserve vital spending at the height of the crisis.
At the same time, the IMF adopted a new, more flexible, policy on external debt limits in IMF-supported programs aimed at balancing the need to ensure debt sustainability with adequate external financing for growth-enhancing investment. In contrast to the previous approach, which allowed only exceptional recourse to nonconcessional borrowing, the new framework adopts a more flexible approach, based on a menu of options, which takes better account of the diversity of situations faced by LICs. Currently, 22 out of the 35 low-income countries with a Fund-supported program in place are eligible for the more flexible options provided under the new policy.
Ensuring effectiveness of IMF’s toolkit
In view of the protracted turbulence and uncertainty in the global economy, the review of the IMF’s facilities for low-income countries provides a timely opportunity to assess the experience with the new architecture, including during the global crisis, and identify any areas where the IMF’s toolkit could be refined to better meet the evolving needs of LICs.
“Having used up some of their fiscal and external buffers during the crisis, many LICs...
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