IMF approves changes to enable debt service relief for poorest countries

The fund will expand the qualification criteria for its Catastrophe Containment and Relief Trust to reflect the needs due to the pandemic

International Monetary Fund Managing Director Kristalina Georgieva says the world economy is facing "severe" economic damage from the coronavirus pandemic. AFP / Brendan Smialowski

The International Monetary Fund's executive board approved changes to provide up to two years of debt service relief to its poorest and most vulnerable members as they respond to the coronavirus outbreak.

In a meeting on Friday, the IMF said it expanded the qualification criteria for its Catastrophe Containment and Relief Trust (CCRT) to reflect the circumstances created by the pandemic.

As a result, all member countries with per capita income below the World Bank's operational threshold for concessional support will now be eligible for debt service relief for up to two years.

The IMF launched a fund-raising exercise that would enable the Trust to provide about $1 billion (Dh3.67bn) for the current pandemic, the Washington-based lender said on Friday.

IMF Managing Director Kristalina Georgieva urged the fund's richer member countries to help shore up the trust, which had only $200 million available for the world's poorest nations. The UK responded with a pledge of $183m while donors from Japan, China and other countries are also contributing.

"We are calling on donor countries to replenish the Trust’s resources to help boost our ability to provide additional debt service relief to our poorest member countries," she said.

Ms Georgieva said she was particularly concerned about emerging markets and developing countries which had seen $83bn in capital outflows and projected they would need upwards of $2.5 trillion in financial resources to recover from virus-related disruptions.

IMF member countries had urged the fund to focus its efforts on steps that could be taken quickly, including a doubling of emergency financing up to $100bn and creation of a new short-term liquidity facility, she said.

Asked whether the global economy needs more than the $5tn in new rescue spending pledged by G20 countries on Thursday; Ms Georgieva said: "Our advice is go big."

"This is a very big crisis and it's not going to be sorted out without a very massive deployment of resources," she said, noting that low interest rates made it easier for countries to provide significant fiscal support.

The G20's $5tn pledge is equal to what was spent in 2009 during the global financial crisis, although economists say this crisis could be far worse.

Mrs Georgieva on Friday said the pandemic has already plunged the world into recession and it will be worse than during the last crisis, which caused a 0.7 per cent drop in global output in 2009.

She welcomed a $2.2tn aid package approved by the US Congress on Friday to cushion the blow to consumers and businesses – more than double what it pledged in 2009.

"The size matters. What matters perhaps even more is well-targeted measures," she said, citing the need to focus stimulus efforts on health systems, income for workers who have lost jobs and keeping companies out of bankruptcy.

The bill includes a $38.5bn contribution to double the IMF’s crisis lending fund to $500bn. The expansion of the New Arrangements to Borrow (NAB) credit line was agreed by member countries in 2019.

On Friday, the IMF also welcomed a move by the US Congress to expedite approval to boost the fund's resources.

"The US decision to speed up approval of its substantial new contributions to the IMF is a powerful message to the international community and helps solidify the IMF’s $1tn lending capacity," Ms Georgieva said. "It comes at a crucial time as the whole world fights COVID-19 and demand for IMF resources is high."

Ms Georgieva said she is “confident” that following the US decision, other NAB contributors will also expedite their commitments, so the IMF “can continue to play its essential role as a lender of last resort at this time of crisis".

Emerging markets will likely need more than $2.5tn in resources, although some of this will come from their internal reserves, and some from domestic borrowing markets, she said.

"I do believe this number is on the lower end, because we are yet to see the full unfolding of this crisis in many emerging markets and developing countries," Ms Georgieva said. "It is hitting countries one after another, and it's like a domino falling until your turn comes."

The IMF could approve additional emergency financing and creation of a short-term liquidity facility when it meets for its now virtual spring meetings in April, said a source familiar with the process.

Mrs Georgieva said it would take longer and more consultation with members to move forward on her proposal to allow countries to draw on their Special Drawing Rights, the currency of the IMF, as was done during the 2009 global financial crisis.