IMF approves debt service relief for 28 states and six-month emergency financing extension

The fund's measures aim to help the poorest nations free up cash to combat the pandemic

FILE PHOTO: FILE PHOTO: The International Monetary Fund logo is seen during the IMF/World Bank spring meetings in Washington, U.S., April 21, 2017. REUTERS/Yuri Gripas/File Photo
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The International Monetary Fund's board approved a second six-month tranche of debt service relief for 28 countries and extended the temporary increase in access limits of emergency financing to help financially vulnerable states combat the Covid-19 pandemic.

The second tranche through the IMF’s Catastrophe Containment and Relief Trust (CCRT) involves the disbursement of an estimated $227 million in grants, the Washington-based lender said in a statement late Monday.

Subject to the availability of resources, the CCRT debt service relief over a two-year time horizon through to April 2022 is estimated at nearly $959m, the IMF said.

“The Covid-19 pandemic continues to exact a serious human and economic toll on the fund membership,” the executive board said.

Freed up resources are “helping to provide emergency health, social and economic support to mitigate the impact of the pandemic on lives and livelihoods”, the board said.

In March, the IMF approved changes to CCRT qualification criteria to help some of the world’s poorest countries face the pandemic-related financial and economic challenges. All member countries with per capita income below the World Bank's operational threshold for concessional support are now eligible for debt service relief for up to two years.

The IMF, which approved the first six-month tranche in April, has launched efforts to fund the CCRT adequately to meet the current and future needs. That requires a commitment of about $1.4 billion.

To date, donor contributions have come from the UK, Japan, Germany, the Netherlands, Switzerland, Norway, China, Mexico, Sweden, Bulgaria, Luxembourg and Malta.

So far, the IMF has received “grant pledges of just over one-third” of the $1.4bn fundraising target and “available resources will need to be boosted to support the approval of future tranches”, the lender said.

The pandemic has tipped the global economy into the deepest recession since the 1930s. The World Bank expects global output to shrink 5.2 per cent this year, while the IMF sees it contracting 4.9 per cent, with only a mild recovery next year.

The early policy action by governments and central banks has put a floor under the global economy. However, the debt levels have skyrocketed in the wake of the pandemic, becoming unsustainable for some emerging market and low income-countries.

Average debt ratios in 2021 are projected to rise to 20 per cent of gross domestic product in advanced economies, 10 per cent in emerging market economies and about 7 per cent in low-income-countries compared to the levels at the end of 2019, Kristalina Georgieva, the IMF's managing director said in a blog post earlier this month.

The fund has also called for an extension of the G20 Debt Service Suspension Initiative into 2021, a temporary programme that expires at the end of this year.

On Monday, the fund's executive board also approved a six-month extension of the temporary increase in access limits under its emergency financing instruments through to April 6, 2021.

The lender had approved a temporary increase in access limits earlier this year under its emergency financing instruments – the Rapid Financing Instrument for all members and the Rapid Credit Facility for only low-income countries – for concessional financing.

The limits on annual access were raised to 100 per cent of the quota from 50 per cent of eligible countries and the limits on cumulative access were increased to 150 per cent from 100 per cent of the quota.

As of the end of August, 69 IMF member countries have received financial support through the fund’s emergency financing instruments since the onset of the pandemic.