The document discusses various loan facilities provided by the International Monetary Fund (IMF). It describes the objectives of IMF lending as providing loans to countries facing actual or potential balance of payments problems. This enables countries to rebuild reserves, stabilize currencies, continue importing, and restore strong economic growth. The document outlines the eligibility criteria and terms of various concessional facilities for low-income countries, as well as non-concessional facilities like Stand-By Arrangements, Flexible Credit Lines, Extended Fund Facilities, and Precautionary Credit Lines.

1. INTERNATIONAL MONETARY FUND- III
LENDING
INTERNATIONAL FINANCE
4TH
SEMESTER, 2014
DEPARTMENT OF COMMERCE
UNIVERSITY OF NORTH BENGAL
April 29, 2014 Ajit Kumar Ray

2. IMF persists that countries should undertake policies to
correct underlying problems.
IMF LENDING OBJECTIVES
IMF declares that its Core Responsibility is to provide
loans to member countries experiencing actual or potential
balance of payment problems.
IMF believes that this financial assistance enables countries to
1. rebuild their international reserves
2. stabilize their currencies
3. continue paying for imports
4. restore conditions for strong economic growth.
A member country may request IMF financial assistance if it has a
balance of payments need—that is, if it cannot find sufficient
financing on affordable terms to meet its net international payments
while maintaining adequate reserve buffers going forward. An IMF
loan provides a cushion that eases the adjustment policies and
reforms that a country must make to correct its balance of payments
problem and restore conditions for strong economic growth.
April 29, 2014 Ajit Kumar Ray

3. Existing Loan Instruments or
Facilities
Concessional Facilities for
Low-Income Countries:
– Extended Credit Facility
(ECF)
– Standby Credit Facility
(SCF)
– Rapid Credit Facility (RCF)
Nonconcessional Loans:
– Stand by Arrangement
(SBA)
– Flexible Credit Line
(FCL)
– Extended Fund Facility
(EFF)
– Precautionary Credit Line
(PCL)
•All non- concessional facilities are subject to the IMF’s market
related interest rate, known as the “Rate of Charge” and above
certain limit carry a surcharge.
•The amount a country can borrow from the fund is known as
its “Access Limit” varies depending on the type of loan, but is
typically a multiple of the country’s IMF quota
•The limit may be exceeded in exceptional cases.
•The Flexible Credit Line has no pre-set cap on access.
Extended Credit Facility:
Eligibility: The ECF is available to all PRGT-eligible member countries
that face a protracted balance of payments problem, i.e. when the
resolution of the underlying macroeconomic imbalances would be
expected to extend over the medium- or longer term.
Duration and repeated use: Assistance under an ECF arrangement is
provided for a three-year period, extendable for up to two additional
years. Following the expiration or cancellation of an ECF arrangement,
additional ECF arrangements may be approved.
Access: Access to ECF financing is determined on a case-by-case basis, taking
into account the country’s balance of payments need and strength of its
economic program, and is guided by access norms. Total access to
concessional financing under the PRGT is limited to 100 percent of quota per
year, and total outstanding concessional credit of 300 percent of quota. These
limits can be exceeded in exceptional circumstances. Access may be
augmented during an arrangement if needed.
Financing under the ECF carries a zero interest rate, with
a grace period of 5½ years, and a final maturity of 10
years. The Fund reviews the level of interest rates for all
concessional facilities under the PRGT every two years.
Standby Credit Facility
Eligibility. The SCF is available to PRGT-eligible member countries facing an
immediate or potential balance of payments need, where the country’s
financing and adjustment needs are normally expected to be resolved within
two years, thus establishing a sustainable macroeconomic position.
Duration and repeated use. An SCF arrangement can range from 12–
24 months. As the SCF is intended to address episodic short-term needs, its
use is normally limited to two and a half out of any five years. Subject to these
limits, an SCF arrangement can be extended or cancelled, and consecutive
arrangements can be approved.
Access. Access to SCF financing is determined on a case-by-case basis, taking into
account the country’s balance of payments need and strength of its economic program,
and is guided by access norms.1 Total access to concessional financing under the PRGT
is limited to 100 percent of quota per year, and 300 percent of quota in total. These
limits can be exceeded in exceptional circumstances. Access may be augmented during
an arrangement if needed.
Precautionary arrangements.
A member country with a potential but not immediate balance of payments
need can treat access under the SCF as precautionary, in which case no
disbursements will be made. However, countries retain and accumulate the
rights to request disbursements under the arrangement if a financing need
were to arise at a later stage.
Concessional lending terms
Financing under the SCF carries a ¼ percent interest rate, but is subject to
exceptional relief of all interest payments on outstanding concessional loans
due to the IMF through the end of 2011. The SCF has a grace period of 4
years, and a final maturity of 8 years. The Fund reviews the level of interest
rates for all concessional facilities under the PRGT every two years.
Rapid Credit Facility
The RCF provides low access, rapid, and concessional financial
assistance to LICs facing an urgent balance of payments need, without
the need for program-based conditionality. It can provide flexible
support in a wide variety of circumstances, including shocks, natural
disasters, and emergencies resulting from fragility. The RCF also
provides policy support and can help catalyze foreign aid.
Eligibility: Outright disbursements under the RCF are available to
PRGT-eligible members that face an urgent balance of payments need,
and where a full-fledged economic program is either not necessary or
not feasible
Highly concessional lending terms:
Financing under the RCF carries a zero interest rate, has a grace
period of 5½ years, and a final maturity of 10 years. The Fund
reviews the level of interest rates for all concessional facilities under the
PRGT every two years.
April 29, 2014 Ajit Kumar Ray

4. Concessional and Non-concessional Loan: Comparative Picture
April 29, 2014 Ajit Kumar Ray

5. Countries Eligible for the IMF Poverty Reduction and Growth
Facility (PRGF) As of September 2009
1 Afghanistan 40 Liberia
2 41 Madagascar
3 42 Malawi
4 Armenia 43 Maldives 1
5 44 Mali
6 Bangladesh 45 Mauritania
7 Benin 46 Moldova
8 Bhutan 47 Mongolia
9 Bolivia 48 Mozambique
10 Burkina Faso 49 Myanmar
11 Burundi 50 Nepal
12 Cambodia 51 Nicaragua
13 Cameroon 52 Niger
14 Cape Verde 1
53 Nigeria
15 Central African Republic 54
16 Chad 55 Papua New Guinea
17 Comoros 56 Rwanda
18 Congo, Democratic Republic of 57 Samoa 1
19 Congo, Republic of 58 Sao Tomé and Príncipe
20 Côte d'Ivoire 59 Senegal
April 29, 2014 Ajit Kumar Ray

6. 21 Djibouti 60 Sierra Leone
22 Dominica 1
61 Solomon Islands
23 Eritrea 62 Somalia
24 Ethiopia 63
25 Gambia, The 64 St. Lucia 1
26 Georgia 65 St. Vincent and the Grenadines 1
27 Ghana 66 Sudan
28 Grenada 1
67 Tajikistan
29 Guinea 68 Tanzania
30 Guinea-Bissau 69 Timor Leste
31 Guyana 70 Togo
32 Haiti 71 Tonga 1
33 Honduras 72 Uganda
34 73 Uzbekistan
35 Kenya 74 Vanuatu 1
36 Kiribati 1
75 Vietnam
37 Kyrgyz Republic 76 Yemen, Republic of
38 Lao, P.D.R. 77 Zambia
39 Lesotho 78 Zimbabwe ²
April 29, 2014 Ajit Kumar Ray
Countries Eligible for the IMF Poverty Reduction and Growth Facility
(PRGF) As of August 2008

7. As part of the reform package, the Executive Board approved a
new concessional financing framework under which a new
Poverty Reduction and Growth Trust (PRGT) would replace the
PRGF-ESF Trust. Separate loan and subsidy accounts would be
established under the PRGT to receive and provide resources to
finance new LIC lending facilities under the new Trust. These
reforms became effective and operational on January 7,
2010, when all lenders and subsidy contributors to the PRGF-
ESF Trust provide their consent.
In September 1999, the IMF established the Poverty
Reduction and Growth Facility (PRGF)
April 29, 2014 Ajit Kumar Ray

8. Main Non-Concessional lending
facilities
April 29, 2014 Ajit Kumar Ray

9. Stand-By Arrangement (SBA)
• Since its creation in June
1952, the IMF’s Stand-By
Arrangement (SBA) has been
used time and again by
member countries
• Rates are non-concessional,
although they are almost
always lower than what
countries would pay to raise
financing from private
markets.
• The SBA was upgraded in
2009 to be more flexible and
responsive to member
countries’ needs.
• Borrowing limits were
doubled
• It is claimed that conditions
were streamlined and
simplified
• Borrowing on a
precautionary basis is made
possible
April 29, 2014 Ajit Kumar Ray

10. Features of Stand-by Arrangement
• Eligibility: All member countries
• Normal access: Borrowing limits
were recently doubled to give
countries access of up to 200
percent of quota for any 12
month period, and 600 percent
of total credit outstanding
• Exceptional access: The IMF
can lend amounts above normal
limits on a case-by-case basis
under its Exceptional Access
policy.
• Rapid access: Fund support
under the SBA can be accelerated
under the Fund’s Emergency
Financing Mechanism, which
enables rapid approval of IMF
lending.
conditions :
Quantitative conditions: Member
countries progress is monitored
using quantitative program targets.
Structural measures: Progress in
implementing structural measures
are to be assessed in a holistic way
in the context of program reviews.
Frequency of reviews:
Continuation of arrangement is
subject to regular reviews by the
IMF’s Executive Board
Lending terms:
•Repayment. Repayment of borrowed
resources under the SBA are due within
3¼-5 years of disbursement.
•Lending rate. The lending rate is tied to
the IMF’s market-related interest rate,
known as the basic rate of charge plus
surcharges if the amount is above 300
percent of quota.
•Commitment fee. Resources committed
under all SBAs are subject to a
commitment fee levied at the beginning of
each 12 month period on amounts that
could be drawn in the period. If the
country borrows the entire amount
committed under an SBA, the commitment
fee is fully refunded.
Service charge. A service
charge of 50 basis points is
applied on each amount
drawn.
April 29, 2014 Ajit Kumar Ray

11. Flexible Credit Line (FCL)
• The Flexible Credit Line (FCL) is for countries with very strong fundamentals,
policies, and track records of policy implementation. IMF must have the confidence
that the economic policies of the country that qualifies to the FCL will remain
strong or that corrective measures will be taken in the face of shocks.
• It represents a significant shift in how the Fund delivers Fund financial assistance,
particularly with recent enhancements, as it has no ongoing (ex post) conditions
and no caps on the size of the credit line.
• The FCL is a renewable credit line, which at the country’s discretion could be for
either one- or two-years, with a review of eligibility after the first year.
• There is the flexibility to either treat the credit line as precautionary or draw on it
at any time after the FCL is approved.
• Once a country qualifies (according to pre-set criteria), it can tap all resources
available under the credit line at any time, as disbursements would not be phased
and conditioned on particular policies as with traditional Fund-supported
programs.
April 29, 2014 Ajit Kumar Ray

12. The criteria used to assess a country’s qualification
for an FCL arrangement
• A sustainable external position
• A capital account position dominated by private flows
• A track record of access to international capital markets at
favorable terms
• A reserve position that is relatively comfortable when the FCL
is requested on a precautionary basis
• Sound public finances, including a sustainable public debt
position
• Low and stable inflation, in the context of a sound monetary
and exchange rate policy framework
• No bank solvency problems that pose systemic threats to
banking system stability
• Effective financial sector supervision
• Data integrity and transparency.
April 29, 2014 Ajit Kumar Ray

13. Precautionary Credit Line (PCL)
•The new Precautionary Credit Line (PCL) is also for countries with sound
fundamentals and policies, and a track record of implementing such policies.
•While they may face moderate vulnerabilities that may not meet the FCL
qualification standards, they do not require the same large-scale policy adjustments
normally associated with traditional Fund-supported program.
•The PCL combines pre-qualification (similar to the FCL), with more focused ex-post
conditions that aim at addressing the identified vulnerabilities.
•Progress is assessed in the context of semi-annual monitoring over a one to two year
period.
•The size of the credit line allows access to a larger amount of resources than under a
typical SBA.
•While there may be no actual balance of payments need should at the time of
approval, the PCL can be drawn upon should such a need arise unexpectedly
April 29, 2014 Ajit Kumar Ray

14. Conditions and Costs of PCL
• The PCL is subject to the same charges, surcharges, commitment fees,
and repurchase period (3½ to 5 years) as the FCL and Stand-By
Arrangements (SBA).
• If funding needs do not materialize, countries pay only a commitment
fee which increases with the level of access available
• The cost of drawing under the PCL varies with the scale and duration of
financing. The lending rate is tied to the IMF’s market-related interest
rate, known as the basic rate of charge,
• Large loans, with credit outstanding above 300 percent of quota, carry a
surcharge of 200 basis points. If credit outstanding remains above
300 percent of quota after three years, the surcharge rises to 300 basis
points.
• Currently, the effective interest under the FCL or an SBA for access
between 500 and 1000 percent of quota—ranges between 2.1–
2.7 percent, and about 2.5–3.4 percent after 3 years.
April 29, 2014 Ajit Kumar Ray

15. Extended Fund Facility
•The Extended Fund Facility is used to help countries address
balance of payments difficulties related partly to structural
problems that may take longer to correct than
macroeconomic imbalances.
•A program supported by an extended arrangement usually
includes measures to improve the way markets and
institutions function, such as tax and financial sector reforms,
privatization of public enterprises
April 29, 2014 Ajit Kumar Ray

16. THANK YOU
April 29, 2014 Ajit Kumar Ray