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1、Whats the Best Way to Bolster the IMFs Capacity to Lend to Low-Income Countries?DAVID ANDREWSAbstractThe IMFs concessional lending to low-income countries through its Poverty Reduction and Growth Trust (PRGT) has risen dramatically since the start of the pandemic and demand for the PRGT resources is
2、 expected to remain above pre-pandemic levels for quitesome time. But the surge in lending has strained the PRGTs financesloan resources have dwindled, subsidy costs have risen sharply, and reserves need bolstering. Projectionsshow the risks to PRGT financing are accentuated given the Russian invasi
3、on of Ukraine and rising global interest rates. A multi-pronged decade-long effort is needed to ensure sound PRGT financing: (1) reinforce current fundraising efforts for loan and subsidyresources; (2) promote the use of the PRGTs deposit investment account; (3) terminate the reimbursement of PRGT a
4、dministrative resources to the IMFs General Resources Account and (4) begin a discussion on IMF gold sales to take place in the out years. Eachprong of the effort should start immediately, given the time lags involved in reaching consensus and implementation.POLICY PAPER 267 SEPTEMBER 2022Whats the
5、Best Way to Bolster the IMFs Capacity to Lend to Low-Income Countries?David AndrewsIndependent consultantDavid Andrews. 2022. “Whats the Best Way to Bolster the IMFs Capacity to Lend to Low-Income Countries?” CGD Policy Paper 267. Washington, DC: Center for Global Development. https:/www.cgdev.org/p
6、ublication/whats-best-way-bolster-imfs-capacity-lend-low-income-countriesCENTER FOR GLOBAL DEVELOPMENT2055 L Street, NW Fifth Floor Washington, DC 200361 Abbey GardensGreat College StreetLondonSW1P 3SEwww.cgdev.orgCenter for Global Development. 2022.The Center for Global Development works to reduce
7、global poverty and improve lives through innovative economic research that drives better policy and practice by the worlds top decision makers. Use and dissemination of this Policy Paper is encouraged; however, reproduced copies may not be used for commercial purposes. Further usage is permitted und
8、er the terms of the Creative Commons License.The views expressed in CGD Policy Papers are those of the authors and should not be attributed to the board of directors, funders of the Center for Global Development, or the authors respective organizations.ForewordOver the past few years, the global fin
9、ancial community has focused on mobilizing resources to help vulnerable countries impacted by the economic fallout first from the COVID19 crisis and now from the Russian invasion of Ukraine. The IMF was quick to step up with support for low-income countriesby ramping up loans from the Poverty Reduct
10、ion and Growth Trust (PRGT). But the high demand for resources has now put at risk the longevity of the PRGT, which has been redesigned beforeCOVID19 to be self-sustaining. More resources will be needed to allow the PRGT to serve vulnerable lowincome countries on a continuing basis but given the fis
11、cal constraints that IMF member countries are facing, these resources will be hard to find.In this paper, David Andrews explains the serious constraints that the PRGT is under and underscores that the risks are heightened by the current global situation. He puts forward afourpronged strategy to rest
12、ore the self-sustaining nature of the PRGT in a way that would minimizebudgetary costs to PRGT contributors. But work on each of the four prongs must begin immediately and proceed in parallel if the IMF is to retain its capacity to help the poorest of its member countries over the long term.Mark Pla
13、ntDirector of Development Finance and Senior Policy FellowCenter for Global DevelopmentIntroductionThe IMFs concessional lending to low-income countries (LICs) through its Poverty Reduction and Growth Trust (PRGT) has risen dramatically since the start of the pandemic. The scale and speed of this re
14、sponse provided essential and timely support to LICs. The PRGTs need for additional resources to lend also saw its emergence, together with the IMFs new Resilience and Sustainability Trust,as a primary vehicle for rich countries to recycle or channel their excess SDR holdings to where they are most
15、needed. The PRGT has so far been able to cover the subsidy costs of this significantly increased concessional lending, but its current resources will not sustain these lending levels overthe long term, especially if the economic impact of the Russian invasion of Ukraine is prolonged. This note consi
16、ders possible financing options. Recognizing the likely constraints on donor financingand the complexities that may preclude IMF gold sales as a funding source, the note makes a case for alternative approaches. We begin by looking at the lending response so far and the steps thathave been taken to a
17、ddress subsidy needs. The IMF recognizes that more will likely be needed. Before assessing the pros and cons of various options, we also consider the uncertain scale of these financing needs.The scale and speed of the initial response were impressiveThe IMF responded rapidly to support its low-incom
18、e member countries in the wake of the covid pandemic, massively increasing financing under the PRGT. Annual commitments under the PRGT,which provides subsidized 10-year loans to LICs, surged from an average of just over SDR 1 billion per year in the previous decade to SDR 6.5 billion in 2020. This w
19、as mostly emergency financing (under the PRGTs Rapid Credit Facility), disbursed in one shot without conditions. In 2021 PRGT supportreverted to the early norm of three-year arrangements with phased disbursements subject toprogram conditionality but commitments again exceeded SDR 6 billion. By the e
20、nd of 2021, new concessional financing had been approved for three-quarters of the 69 countries eligible to drawfrom the PRGT.Demand for financing from the PRGT is expected to remain well above pre-pandemic levels forsome time. The baseline scenario in the IMFs recent paper on the PRGT finances sugg
21、ests further new commitments averaging SDR 3 billion a year in 202224, or still more than 2 times their pre-pandemic level. If lending continues at this pace, the stock of PRGT credit outstanding would reachover SDR 21 billion in 2025, or more than three times its level before the pandemic.This high
22、er lending, coupled with the SDR allocation, is providing essential support to LICs in the pandemic. As a group, LICs suffered their sharpest decline in average per capita income in recentdecades. LICs in Sub-Saharan Africa comprising more than half of the PRGT eligible countries saw per capita inco
23、me decline in 2020 after two decades of growth averaging 3 percent. This severeWHATS THE BEST WAY TO BOLSTER THE IMFS C APACIT Y TO LEND1TO LOWINCOME COUNTRIES?setback included an estimated increase in the global population in extreme poverty of close to 100 million in 2020, and the World Bank expec
24、ts to see a further increase in poverty in LICs when data are available for 2021. At a macroeconomic level, it is also striking that even with the large-scale PRGT financing noted above and the allocation of over SDR 15 billion to LICS in August 2021both of which, in the first instance, added direct
25、ly to each countrys gross international reservesthe average reserve cover for LICs in SSA was lower at end-2021 (2.7 months of imports) than at end-2019(3 months).But the surge in lending has strained the PRGTs financesThe PRGT is distinct from the IMFs much larger quota-based lending operations on
26、its main balance sheet (the General Resources Account or GRA). The resources it lends to LICs are borrowed from its richer member countries under voluntary agreements. Lenders are paid the SDR interest rate, but borrowers from the PRGT pay a subsidized rate currently zero and never more than 0.5 per
27、cent.The PRGTs subsidy and reserve accounts cover these subsidy costs, and the reserve account also provides additional security to lenders; its resources can be used to repay loans if repayments by LIC borrowers are delayed. (A fuller description of this structure can be found here). The sharp rise
28、 in lending has put stress on all aspects of this structure loan and subsidy resources and the coverage of the reserve account.As PRGT lending surged, loan resources dwindled. However, this constraint was rapidly eased as richer countries agreed to lend more. An initial request in April 2020 resulte
29、d in new lendingcommitments of almost SDR 17 billion from 16 countries. (This included commitments to recycle additional SDRs, even before the new allocation in August 2021). Coupled with a further SDR12.5 billion that was requested under the second round of funding launched in mid-2021, the PRGT sh
30、ould have sufficient loan resourceseven if demand were to remain at SDR 6 billion per yearthrough 2024 rather than fall back to the SDR 3 billion a year assumed in the baseline scenario.Subsidy costs have also risen sharply. It might seem paradoxical that subsidy costs would be aconcern when interes
31、t rates are still near historic lows. Indeed, for much of 2020 and 2021, theSDR interest rate was just 0.05 percent, so actual subsidy payments in this period would have beennegligible. However, loan approval is also, in effect, a commitment to pay subsidies throughout the life of a 10-year PRGT loa
32、n, and it is, therefore, the future path of rates that determines the totalsubsidy cost. The surge in loan commitments since the start of the pandemic has already entailed future subsidy costs that are estimated to be much higher than before the pandemic, even if interest rates only gradually increa
33、se. Fortunately, the PRGTs subsidy and reserve accounts are largeenough to cover the subsidy costs of lending at elevated levels for some yearsbut there are limitsto this process, and restoring the future lending capacity of the PRGT will ultimately require a large injection of new subsidy resources
34、.WHATS THE BEST WAY TO BOLSTER THE IMFS C APACIT Y TO LEND2TO LOWINCOME COUNTRIES?Before the pandemic, the PRGT was “self-sustaining” but will now need an injection of money.The PRGTs reserve and subsidy accounts (effectively an endowment) could generate enough income to cover the expected subsidy c
35、osts of lending commitments averaging SDR 1.4 billion perannum over the long term (if not in perpetuity). This annual level of commitments was expected tobe sufficient to meet the long-term needs of LICs. But clearly, lending since the pandemic has far exceeded these levels. The IMFs baseline projec
36、tion implies that commitments in the five years from the start of the pandemic (202024) will be about SDR 21.5 billion, or about three times the level that could be accommodated in this self-sustaining framework. The fundraising effort launched in July 2021 seeks a total of SDR 2.8 billion to meet t
37、hese additional subsidy costs and raise the sustainable lending capacity of the PRGT from SDR 1.4 billion before the pandemic to an average of SDR 1.65 billion per annum from 2025. (See Box 1 for the authors explanation of these calculations and the self-sustained lending capacity of the PRGT)BOX 1.
38、 The estimated costs of restoring and raising the PRGTs lending capacityRestoring the PRGTs annual lending capacity to SDR 1.4 billion will cost about SDR 1.7 billion.PRGT lending commitments are expected to total SDR 21.5 billion over the five years 20202024. Before the pandemic, the self-sustainab
39、le lending capacity was estimated at SDR 1.4 billion a year, so for the five-year period, commitments would be SDR 14.5 billion higher than could be coveredby the income from the endowment without reducing future lending capacity. Assuming the SDRinterest rate averages about 1.5 percent while these
40、loans are outstanding, these commitments imply additional subsidy costs of about SDR 220 million a year, or a total of around SDR 1.7 to billion, given the average maturity of PRGT loans of about 7 years.The self-sustained capacity of the PRGT is related to the size of the endowment, the rate of ret
41、urn it generates, and the interest rate paid to lenders. After the injection described above, the annuallending capacity would, on the assumptions of the baseline scenario, be restored to SDR 1.4 billionin 2025. Given the average maturity of PRGT loans, this level of annual commitments implies that
42、the stock of new PRGT credit supported by the restored endowment would reach a plateau of aboutSDR 11 billion after ten years. At this point, the endowment would also peak (at over SDR 9 billion) when the interest it earns (at the SDR interest rate plus the assumed investment premium of0.9 percent)
43、plus any interest charged to countries borrowing from the PRGT would be just sufficient to cover the SDR interest paid to bilateral lenders on the stock of PRGT credit outstandingand the administrative costs of operating the PRGT.Increasing the size of the endowment with raise the lending capacity o
44、f the PRGT. The chart shows the evolution of the credit stock and the endowment assuming annual commitments ofSDR 1.4 billion (in blue) and the path of the same variables assuming annual commitments of SDR 1.65 billion (in red). In the latter case, the credit stock would peak at about SDR 13 billion
45、. In bothcases, the SDR interest rate is assumed to average 2.5 percent, which also means that borrowers from the PRGT would pay 0.5 percent per annum. The administrative costs of the PRGT areWHATS THE BEST WAY TO BOLSTER THE IMFS C APACIT Y TO LEND3TO LOWINCOME COUNTRIES?assumed to average SDR 65 m
46、illion per year. Under these assumptions, the endowment needs to be about SDR 1.3 billion larger in 2035/6 to generate enough income to cover costs. However, the injection of funds in 2025 can be smaller about SDR 1.1 billion. It takes approximately ten years for the increase in annual commitments t
47、o be fully reflected in the stock of credit, and during thisperiod, the endowments income will more than cover subsidy costs, allowing the endowmentto grow to the required level in 2035/6. The bottom line is that, on these assumptions, raising the annual commitment capacity by SDR 250 million (to SDR 1.65 billion) requires an injection of grants into the endowment in 2025 of SDR 1.1 billion or roughly 4 times larger than the resultingincrease in the self-sustained capacity.FIGURE 1. PRGT: commitment cap