This is the first review of the interest rate mechanism approved under the 2009 reforms of the Fund’s concessional lending facilities. The mechanism links the Poverty Reduction and Growth Trust (PRGT) interest rate structure to world interest rates and provides a setting to differentiate interest rates across the various PRGT facilities. The framework requires reviews every two years, with the first such review to be completed by December 31, 2011.
This is the first review of the interest rate mechanism approved under the 2009 reforms of the Fund’s concessional lending facilities. The mechanism links the Poverty Reduction and Growth Trust (PRGT) interest rate structure to world interest rates and provides a setting to differentiate interest rates across the various PRGT facilities. The framework requires reviews every two years, with the first such review to be completed by December 31, 2011.
In 2009, the Board also endorsed temporary relief of interest payments on all outstanding concessional loans for PRGT-eligible members. All interest payments on PRGT loans were waived through end-December 2011. At the same time, the rate of charge on loans to PRGT-eligible members under Emergency Natural Disaster Assistance (ENDA) and Emergency Post-Conflict Assistance (EPCA) was subsidized to zero through end-January 2012. This two-year waiver, which became effective in January 2010 alongside the broader Low Income Country (LIC) facilities reform, was aimed at providing exceptional relief during the global economic crisis. As of November 11, 2011, the interest waiver had benefited 18 PRGT-eligible members and one member that graduated from PRGT eligibility in 2010. Combining the interest payments waived to November 11, 2011, and the projected payments for the remaining period of the interest waiver, the total cost to the Fund amounts to SDR 5.8 million.
Staff recommends that as a transitional measure the exceptional interest waiver be extended by one year to end-December 2012 in view of the current severe downside risks to the global economic outlook. It is proposed that the exceptional relief would expire at the end of 2012, and the differentiated PRGT interest rate mechanism thereafter be allowed to operate as envisaged. On this basis, the applicable interest rates in 2013 would be zero on all Extended Credit Facility (ECF) and Rapid Credit Facility (RCF) loans, and 0.25 percent for Standby Credit Facility (SCF) loans. Additionally, outstanding loans under the Exogenous Shocks Facility (ESF) and subsidized ENDA/EPCA credits would carry an interest rate of 0.25 percent after the interest waiver expires. In accordance with the PRGT Instrument, the next review of PRGT interest rates would take place by December 31, 2013.
International Monetary Fund.Prepared by the Finance and the Strategy, Policy, and Review Departments (In consultation with the Legal Department) Approved by Andrew Tweedie and Siddharth Tiwari November 23, 2011
