IMF financing for PALOP countries could go up to 45%

Financiamento do FMI para os PALOP pode subir até 45%

The International Monetary Fund (IMF) announced this Thursday that it will increase by 45% the financing limit for low-income countries, among which are most Portuguese-speaking countries in Africa and Timor-Leste.

"The centerpiece of the policy reforms approved by the IMF board is a 45% increase in the normal limits on access to concessional financing, together with the elimination of absolute limits on access by the poorest countries," reads the IMF statement quoted by Lusa, which points out that among the 69 low-income countries (LICs) are the Portuguese-speaking countries Timor-Leste, Mozambique, São Tomé and Príncipe, Cape Verde and Guinea-Bissau.

According to Lusa, the reforms now announced are aimed at "ensuring that the Fund can flexibly support the financing needs of LICs during the pandemic and recovery, while continuing to provide concessional loans at zero interest rates," reads the note released in Washington.

In the Fund's communiqué, it is also stated that a two-stage financing strategy has been approved, to cover the cost of these concessional loans, whose limits have now been raised, on the one hand, and to ensure the sustainability of the Poverty Reduction and Growth Trust (PRGT).

"The first step of the strategy aims to secure 2.8 billion Special Drawing Rights [SDRs, the IMF's currency] in grant resources to sustain zero interest rates, and an additional 12.6 billion SDRs in loans that can be facilitated through the channeling of SDRs," the statement further pointed out.

The SDR is the currency that the IMF uses in lending to countries, and is made up of a basket using the six most commonly used currencies internationally.

The Fund is preparing a special allocation of new SDRs worth $650 billion, which will be used to finance global economic recovery, and of which $33 billion will go to the African continent, $28 billion of which will increase the international reserves of sub-Saharan African countries.

Under the proposed changes, IMF staff estimate that total lending under the PRGT will reach 21 billion SDRs during the pandemic and the aftermath, i.e. until 2024, more than four times the annual average.

The covid-19 pandemic has exacerbated the economic difficulties of the most fragile countries and is prolonging over time the reduction in economic activity due to the lack of capacity to vaccinate the population and reopen the economies safely.

Last year, the IMF lent 9.3 billion SDRs, about 11.2 billion euros, representing an eight-fold increase over the annual average between 2017 and 2019, with most of it being delivered between April and July last year to 53 of the 69 eligible countries.

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