IMF support for poor countries gets big boost
Email:kankiilu@yahoo.com
The International Monetary Fund (IMF) has approved distribution of additional profits from gold sales as part of a strategy to support low-interest lending to poor countries across the world.
The 2009–10 gold sales generated profits of special drawing rights ( SDR) 6.85 billion ($10.5 billion), some SDR 2.45 billion above the amount envisaged for an endowment to reduce the IMF’s reliance on lending income to cover its operational expenses.
An earlier distribution of SDR 0.7 billion ($1.1 billion) of these excess (or “windfall”) profits is helping generate subsidy resources for concessional lending to low-income countries during the crisis.
The IMF has now taken a similar decision to distribute the remaining SDR 1.75 billion ($2.7 billion) as part of a strategy to generate additional financial resources for the Poverty Reduction and Growth Trust (PRGT), the IMF’s concessional lending vehicle.
An IMF report released in September 2012 warned that the sharp drop in PRGT financing capacity after 2014 needed to be addressed for the IMF to maintain its capacity to help low-income countries in the future and support their efforts to promote strong and sustainable growth.
The report also noted IMF support helped low-income countries navigate the crisis and promote longer-term poverty reduction and growth, but that these countries remain exposed to global risks and volatility.
Reforms agreed to in 2009 doubled poor countries’ access to concessional financing and reduced interest rates to zero, supported by a concessional financing package for 2009–14.
After 2014, a “self-sustained” PRGT relying solely on its remaining resources to generate necessary additional subsidy resources—which are needed to fund the concessional rates of interests on loans—would have been able to subsidize loans to the tune of only about SDR 0.7 billion per year, well below the lower bound of projected borrowing needs of low-income countries. The IMF estimates these needs to be in the range of SDR 1.0—1.7 billion over the next decade.
To address the anticipated shortfall, the IMF plans to distribute to members the remaining windfall profits from gold sales to facilitate subsidy resources from members for the PRGT, raising the self-sustaining capacity of the PRGT to around SDR 1¼ billion.
“The IMF has long-recognized the desirability of a self-sustained vehicle for concessional lending to low-income countries. Among other things, it introduces greater certainty that the IMF will be able to meet the borrowing needs of its low-income member countries in the longer-term,” said Robert Powell of the IMF’s Finance Department.
“The PRGT borrows from IMF member countries and then lends these funds on to low-income countries in need, but in order to do so at below-market rates of interest, subsidy resources are required. Resources linked to the windfall profits from gold sales will help with this.”
In moving ahead with the distribution, the IMF will use the same method applied in the context of the earlier distribution of SDR 0.7 billion. Because the windfall profits from the gold sales are part of the IMF’s general resources available for the benefit of the entire membership, they cannot be placed directly in the PRGT, which is available only to low-income countries.
Accordingly, the distribution to all IMF members of SDR 1.75 billion will be made in proportion to their quota shares, with the expectation that members would direct the IMF to transfer these resources (or would provide broadly equivalent amounts) to the PRGT as subsidy contributions.
The distribution will be effected only after members have provided satisfactory assurances that new amounts equivalent to at least 90 percent of the amount distributed—i.e., SDR 1.575 billion—will be transferred, or otherwise provided, to the PRGT.
Instructively, on September 18, 2009, the IMF’s Executive Board approved gold sales strictly limited to 403.3 metric tons, representing one eighth of the Fund’s total holdings at that time. The gold sales program was completed in late December 2010.
Short URL: http://thechronicle.com.gh/?p=48209