Background

What types of financial assistance will the IMF provide?

23 August 2005 | FAQ

The IMF provides various types of loans to member governments. Concessional loans are granted to low-income countries at a concessional interest rate through the Poverty Reduction and Growth Facility (PRGF) while non-concessional loans are provided with a market-based interest rate through five mechanisms: the Stand-By Arrangements (SBA); Extended Fund Facility (EFF); Supplemental Reserve Facility (SRF); Contingent Credit Lines (CCL); and the Compensatory Financing Facility (CCF).

Members facing a balance of payments problem can immediately withdraw up to 25 per cent of its quota in gold or convertible currency. If this is insufficient, a member country may borrow up to three times its paid-in quota.

Two frequently used mechanisms for IMF loans are the Standby Arrangements and the Extended Fund Facility. Under the Standby Arrangements, member countries are allowed to borrow over a period of one to two years to support macroeconomic stabilisation programmes and repayments are made within three to five years. Under the Extended Fund Facility, countries borrow for a period of three to four years and repayments are not due until five to ten years down the line.

Member countries can also avail themselves of the Fund’s short-term financing facilities. The Supplemental Reserve Facility provides very short-term financing on a large scale to emerging market economies experiencing sudden loss of market confidence as a result of massive outflows of capital while the Contingent Credit Lines finances national economic policies aimed at averting an economic crisis precipitated by crisis elsewhere in the world. Both types of financing require repayment within one to two years and carry a surcharge. The Compensatory and Contingency Financing Fund provides loans to countries experiencing shortfalls in export earnings due to unforeseen circumstances, such as natural disasters affecting crop yields. Repayments are made in three and quarter to five years.