According to its website, the IMF lends money to member countries to help them through economic crises or to prevent crises occurring. The IMF only lends to governments, not the private sector or civil society, and all IMF financing is fungible – meaning the loan itself is not tied to any specific project or expenditure – unlike loans by development banks which are often used to support specific projects. Almost all IMF loans come with stringent conditions (i.e. conditionality) attached related to policy changes that governments are required to make in order to receive the funding. For ongoing coverage of IMF conditionality issues, see BWP’s Conditionality page, and for background on conditionality critiques, see Inside the Institutions, What are the main criticisms of the World Bank and IMF?
The IMF offers a number of different types of loans (called instruments or programmes) to governments, depending on their circumstances and income classification. All IMF member countries are eligible to borrow from the IMF’s General Resources Account (GRA) at market-based interest rates, while only low-income countries are eligible to borrow at concessional rates (currently at 0 per cent interest rates through June 2021) through the Poverty Reduction and Growth Trust (PRGT). How much a country can borrow under each instrument depends on their IMF quota share, which is determined by a formula that considers the size of their economic output and other factors (see Inside the Institutions, IMF and World Bank decision-making and governance).
The IMF’s main lending instruments are:
- Stand-By Arrangement (SBA): Described by the IMF as its ‘workhorse’, the SBA is intended for emerging and advanced market economies to address short-term or potential balance of payments problems. It typically covers a period of 12-24 months, but no more than 36 months, and repayments are due within three-to-five years.
- Standby Credit Facility (SCF): Similar in purpose to the SBA, this instrument is used to address short-term or potential balance of payments problems, but intended for low-income countries under the PRGT. SCF has a repayment grace period of four years and a final maturity of eight years.
- Extended Fund Facility (EFF): The EFF is designed for emerging and advanced market economies with longer-term balance of payments problems, where impediments to growth are considered structural. EFFs are typically approved for three years but may be extended. Repayments are due within four-to-ten years.
- Extended Credit Facility (ECF): The ECF is the equivalent to the EFF for low-income countries and falls under the PRGT. It is designed to address medium-to-long-term structural issues. ECFs are also provided initially for three years but may be extended up to five years and include a five-year grace period, with a maturity of ten years.
- Rapid Financing Instrument (RFI): The RFI provides rapid financial assistance to countries with urgent balance of payments needs. RFIs can be used for a range of urgent needs, like natural disasters, conflicts and commodity price shocks, and should be repaid within three and a quarter to five years.
- Rapid Credit Facility (RCF): The RCF, as is the case with the RFI, is designed for rapid financial assistance during crises, but serves low-income countries under the PRGT, and carries a grace period of five years and final maturity of ten years. Unlike other facilities, RCFs and RFIs are provided in one outright loan disbursement, meaning no conventional conditionality needs to be met during the programme prior to disbursements. However, as countries still have to provide a letter of intent to the IMF detailing their planned economic response to the crisis, to which the IMF must agree, RCF and RFI have nonetheless been considered to include de facto conditionality. In response to Covid-19, the IMF doubled how much countries can borrow under the RCF and RFI.
- Flexible Credit Line (FCL): The FCL is designed for countries that the IMF deems to have strong policy frameworks and track records in economic performance that are in an immediate cash crunch – but want to avoid the stigma and adverse market reaction associated with regular IMF programmes with conditionality. The FCL therefore does not involve ongoing conditions and functions as a one-to-two year renewable credit line. Five countries have used the FCL so far (Chile, Colombia, Mexico, Peru and Poland). Repayment is required over a three-to-five-year period.
- Precautionary and Liquidity Line (PLL): The PLL is designed to meet the liquidity needs of countries with economic frameworks that the IMF deems sound, but with remaining problems that preclude them from using the FCL. Only the Republic of North Macedonia and Morocco have used the PLL so far.
- Catastrophe Containment and Relief Trust (CCRT): The CCRT is different from the instruments above because it allows the IMF to provide grants, rather than loans, to the poorest countries in the form of debt relief. It was designed in 2015 during the Ebola outbreak to provide relief during catastrophic natural or public health disasters and free up resources to meet exceptional balance of payments needs. In 2020, its eligibility criteria were relaxed in response to Covid-19 and the instrument was initially approved for 25 eligible countries.
- Policy Support Instrument (PSI): Finally, the IMF offers a facility to low income countries under the PRGT that involves no financing whatsoever. The PSI was designed to give low-income countries a ‘tool’ that enables them to secure IMF advice without financial assistance, with the intention of signalling confidence to donors, creditors and the general public that they are supported by the IMF. PSIs last between one and five years and cannot be used in conjunction with an ECF.