CARIBBEAN-Caribbean countries could benefit from the new IMF initiative.

WASHINGTON, CMC—Caribbean Community (CARICOM) countries could benefit from the International Monetary Fund’s (IMF) decision on Monday to approve a set of reforms to its concessional lending facilities and an associated funding strategy to preserve the financial institution’s ability to provide adequate support to low-income countries (LDCs) over the long term.

Caribbean countries have complained about the policies by which concessional financial assistance might be extended to help their economies. They propose, for example, that credit be extended to countries that have already invested in green technology.

The Washington-based financial institution said the reforms follow the “2024 Review of the Poverty Reduction and Growth Trust (PRGT) Facilities and Financing—Reform Proposals,” even as it has significantly scaled up support to its low-income members in response to the COVID-19 pandemic and subsequent significant shocks.

It said annual lending commitments have risen to an average of SDR 5.5 billion (one SDR = US$1.33 cents) since 2020, compared with about SDR 1.2 billion during the preceding decade.

The IMF said that outstanding PRGT credit has tripled since the pandemic’s onset, while the SDR interest rate funding costs have risen sharply. As a result, the PRGT faces an acute funding shortfall, with its self-sustained lending capacity projected to decline, absent reforms, to about one billion SDR a year by 2027, well below expected demand.

The reforms approved by the IMF’s Executive Board aim to maintain adequate financial support for LICs while restoring the PRGT’s self-sustainability.

The Executive Board endorsed a long-term annual lending envelope of SDR 2.7 billion ($3.6 billion) and approved a package of policy reforms and resource mobilization to support that lending capacity.

It said the envelope, which is more than twice the pre-pandemic capacity, is calibrated to ensure that the Fund can use its limited concessional resources to continue providing vital balance-of-payment support to LICs while supporting strong economic policies and catalyzing fresh financing from other sources.

The review includes policy changes that reflect the increasing economic heterogeneity among LICs. A new tiered interest rate mechanism will enhance the targeting of scarce PRGT resources to the poorest LICs, which will continue to benefit from interest-free lending. In contrast, better-off LICs will be charged a modest, still concessional, interest rate.

The access norm will be set at 145 percent of the quota to help anchor the average size of future arrangements and the overall lending volume. At the same time, annual and cumulative limits for PRGT regular access will remain at 200 and 600 percent of the quota, respectively. This will allow for flexibility in calibrating the Fund’s support. In light of high lending volumes and risks, safeguards will be strengthened and streamlined to maintain a robust and efficient risk management framework.

The IMF said that after a successful bilateral fundraising and a robust financial outlook for the Fund, the membership reached a consensus on a framework to deploy IMF internal resources to facilitate the generation of PRGT subsidy resources.

Specifically, SDR 5.9 billion (about US$8 billion), in 2025 present value terms, is expected to be generated through a framework to distribute GRA net income and reserves over the next five years.

The IMF said this would be in addition to additional bilateral subsidy contributions, subsidy savings from the new interest rate mechanism, and financing from a proposed further five-year suspension of PRGT administrative expenses reimbursement to the GRA.

The IMF directors agreed that the following general review of the Fund’s facilities for LDCs will occur on the standard five-year cycle.