The IMF’s policy review of the Poverty Reduction and Growth Trust (PRGT), its concessional lending programme for low-income countries (LICs), announced shortly before the October Annual Meetings in Washington DC, represents an attempt to “restore the self-sustainability” of the Trust in the context of increased demand, higher interest rates and the absence of offsetting donor pledges. Since the Covid-19 pandemic, the PRGT is under strained demand, with annual lending commitments increasing to an average of 5.5 billion Special Drawing Rights (SDRs; see Inside Institutions, What are Special Drawing Rights (SDRs)?) compared with about SDR 1.2 billion in the previous decade.

The review includes policy changes involving a self-sustained annual lending envelope calibrated at SDR 2.7 billion and a new tiered interest rate applied to around half of all LICs eligible for PRGT funding. The new mechanism will impose an interest rate of 0.7 of the SDR interest rate (SDRi) for countries that do not face elevated debt vulnerabilities limiting their access to international financial markets, and 0.4 of the SDRi for countries that face elevated debt vulnerabilities, have limited access to international financial markets, or are a small or micro-state. Access limits will be kept at their current levels of 200 per cent of quota share annually, meaning a country cannot borrow annually more than twice the amount it contributes to the Fund.

Amid ongoing systemic crises, including food insecurity exacerbated by the war in Ukraine, the growing impact of climate change, rising debt vulnerabilities in LICs and alleged pressures on rich countries’ budgets leading to a decrease in official development assistance, the PRGT review was immediately met with criticism, with the Vulnerable Twenty (V20) Group –  the most affected by these changes – calling “for a discontinuation of this tiered mechanism to avoid overburdening LICs” (see Dispatch Annuals 2024).

There are other ways to address the concerns about self-sustainability the review raises, like an SDR interest rate cap and the sale of IMF gold reserves, but it should not come as a surprise that an institution in which the V20's 55 countries collectively hold less than 6% of vote shares makes decisions that completely ignores their voice.Emma Burgisser, Christian Aid

While the Fund maintains that the tiered interest rate mechanism will reflect “a modest, concessional” rate and will “enhance the targeting of scarce PRGT resources to the poorest LICs,” the SDRi has been continuously on the rise – reaching 4.1 per cent as of May 2024, due to the tight monetary policy pursued by advanced economies to curb inflation. An SDRi cap would help to prevent the Fund’s lending activities from becoming prohibitively expensive at a time of multiple shocks to the global economy.

While the new set annual funding is more than twice the pre-Covid-19 average and will facilitate generation of SDR 5.9 billion (about $8 billion) in additional PRGT subsidy resources, this falls short of the $40 billion demand estimated by the IMF for this year. Civil society has argued the Fund could solve this problem by selling some of its gold reserves. “We need more concessional and grant-based financing for developing countries, not less. There are other ways to address the concerns about self-sustainability the review raises, like an SDR interest rate cap and the sale of IMF gold reserves, but it should not come as a surprise that an institution in which the V20’s 55 countries collectively hold less than 6% of vote shares makes decisions that completely ignores their voice,” noted Emma Burgisser, Economic Justice Policy Lead at Christian Aid. IMF’s gold reserves are currently heavily undervalued, with a book value of about SDR 3 billion according to the Fund’s own internal accounting value, but their market value is currently over $176 billion (SDR 131 billion). Selling only a small proportion would solve IMF’s funding issue – an option preferred by many shareholders – but is so far not feasible due to strong pushback from the US.