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Thursday, May 23, 2024

Strengthening lending capacity: IMF secures loans from member countries

IMF lending aims to give countries breathing room to implement adjustment policies in an orderly manner, which will restore conditions for a stable economy and sustainable growth. Given the recent trend of recession in the global economy, the IMF has urged all its member countries to beef up their contributions in order to help the struggling countries as more as possible.

The International Monetary Fund (IMF) said Tuesday its members have agreed to renew arrangements ensuring the fund has lending firepower, especially as the coronavirus pandemic creates a demand for financing.

“This action is part of a broader package on IMF resources and governance reform that will help maintain the IMF’s lending capacity of $1 trillion,” the fund said in a statement.

The executive board of the Washington-based development lender on Monday approved the bilateral borrowing arrangements to take effect January 1, 2021, just after the current round expire, which will be in place for three years but can be extended through the end of 2024.

The IMF assists countries hit by crises by providing them financial support to create breathing room as they implement adjustment policies to restore economic stability and growth.

It also provides precautionary financing to help prevent and insure against crises. The IMF’s lending toolkit is continuously refined to meet countries’ changing needs.

The IMF provides financial support for balance of payments needs upon request by its member countries. Unlike development banks, the IMF does not lend for specific projects.

Following such a request, an IMF staff team holds discussions with the government to assess the economic and financial situation, and the size of the country’s overall financing needs, and agree on the appropriate policy response.

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The arrangements currently in place provide $450 billion from 40 countries, and add to the IMF’s other resources including usual quotas provided by each member, as well as financing under the New Arrangements to Borrow which will be doubled to just over $500 billion.

IMF Managing Director Kristalina Georgieva last week said the global economy already has entered recession due to the sudden stop inactivity caused by the pandemic and more than 80 countries, mostly of low incomes, have requested emergency aid.

Emerging markets, which have suffered an exodus of capital of more than $83 billion in recent weeks, face financing needs of $2.5 trillion, which will require some outside assistance, she said.

AFP with additional input from GVS News Desk.