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Factsheet - February 2005

IMF Lending

A core responsibility of the IMF is to provide loans to countries experiencing balance-of-payments problems. This financial assistance enables countries to rebuild their international reserves, stabilize their currencies, continue paying for imports, and restore conditions for strong economic growth. Unlike development banks, the IMF does not lend for specific projects.

When can a country borrow from the IMF?

A member country may request IMF financial assistance if it has a balance of payments need—that is, if it cannot find sufficient financing on affordable terms to meet its net international payments. An IMF loan eases the adjustment policies and reforms that a country must make to correct its balance of payments problem and restore conditions for strong economic growth.

IMF Credit Outstanding

The changing nature of IMF lending

The volume of loans provided by the IMF has fluctuated significantly over time. The oil shock of the 1970s and the debt crisis of the 1980s were both followed by sharp increases in IMF lending. In the 1990s, the transition process in Central and Eastern Europe and the crises in emerging market economies led to further surges in the demand for IMF resources.

The process of IMF lending

An IMF loan is usually provided under an "arrangement," which stipulates the specific policies and measures a country has agreed to implement in order to resolve its balance of payments problem. The economic program underlying an arrangement is formulated by the country in consultation with the IMF, and is presented to the Fund’s Executive Board in a "Letter of Intent." Once an arrangement is approved by the Board, the loan is released in phased installments as the program is carried out.

IMF Facilities

Over the years, the IMF has developed a number of loan instruments, or "facilities," that are tailored to address the specific circumstances of its diverse membership. Low-income countries may borrow at a concessional interest rate through the Poverty Reduction and Growth Facility (PRGF). Non-concessional loans are provided through four main facilities: Stand-By Arrangements (SBA), the Extended Fund Facility (EFF), the Supplemental Reserve Facility (SRF), and the Compensatory Financing Facility (CFF).  The IMF also provides emergency assistance to support recovery from natural disasters and conflicts, in some cases at concessional interest rates.

Except for the PRGF, all facilities are subject to the IMF’s market-related interest rate, known as the "rate of charge," and some carry an interest rate premium or "surcharge." The rate of charge is based on the SDR interest rate, which is revised weekly to take account of changes in short-term interest rates in the major international money markets. The rate of charge was 3.39 percent as of February 28, 2005. Large loans carry a surcharge and must be repaid early if a country’s external position permits.

The amount that a country can borrow from the Fund—its "access limit"—varies depending on the type of loan, but is typically a multiple of the country’s IMF quota.

Poverty Reduction and Growth Facility (PRGF). Concessional lending arrangements to low-income countries are underpinned by comprehensive country-owned strategies, as specified in their Poverty Reduction Strategy Papers (PRSPs). In recent years, the largest number of IMF loans have been made through the PRGF. The interest rate levied on PRGF loans is only 0.5 percent, and loans are to be repaid over a period of 5½–10 years.

Stand-By Arrangements (SBA). The SBA is designed to help countries address short-term balance-of-payments problems and is the facility that provides the greatest amount of IMF resources. The length of a SBA is typically 12–18 months, and repayment is normally expected within 2¼–4 years. Surcharges apply to high access levels.

Extended Fund Facility (EFF). This facility was established in 1974 to help countries address more protracted balance-of-payments problems requiring fundamental reforms to the structure of the economy. Arrangements under the EFF are thus longer—usually 3 years. Repayment is normally expected within 4½–7 years. Surcharges apply to high levels of access.

Supplemental Reserve Facility (SRF). This facility was introduced in 1997 to meet a need for very short-term financing on a large scale. The motivation for the SRF was the sudden loss of market confidence experienced by emerging market economies in the 1990s, which led to massive outflows of capital and required financing on a much larger scale than anything the IMF had previously been asked to provide. Countries are expected to repay loans within 2–2½ years, but may request an extension of up to six months. All SRF loans carry a substantial surcharge of 3–5 percentage points.

Compensatory Financing Facility (CFF). The CFF was established in 1963 to assist countries experiencing either a sudden shortfall in export earnings or an increase in the cost of cereal imports caused by fluctuating world commodity prices. The financial terms are the same as those applying to the SBA, except that CFF loans carry no surcharge.

Emergency assistance. The IMF provides emergency assistance to countries that have experienced a natural disaster or are emerging from conflict. Emergency loans are subject to the basic rate of charge, although interest subsidies are available for PRGF-eligible countries, subject to availability. Loans must be repaid within 3¼–5 years.

General Terms of IMF Financial Assistance
  Repurchase Terms
Facility or Policy Charges Obligation
Schedule
(Years)		 Expectation1
Schedule
(Years)		 Installments
Stand-by Arrangement Basic rate2 plus  surcharge3 3¼–5 2¼–4 Quarterly
Extended Fund Facility Basic rate2 plus  surcharge3 4½–10 4½–7 Semiannual
Compensatory Financing Facility Basic rate2 3¼–5 2¼–4 Quarterly
Emergency Assistance Basic rate2 4 3¼–5 N/A Quarterly
Supplemental Reserve Facility Basic rate2 plus  surcharge5 2½–3 2–2½ Semiannual
Poverty Reduction and Growth   Facility 0.5 percent per  annum 5½–10 N/A Semiannual
Memorandum Items:6
Service Charge 50 basis points
Commitment Charge7 25 basis points on committed amounts of up to 100 percent of   quota, 10 basis points thereafter
1 Disbursements made after November 28, 2000—with the exception of disbursements of Emergency Assistance and loans from the Poverty Reduction and Growth Facility—are expected to be repaid on the expectation schedule. A member not in a position to meet an expected payment can request the Executive Board to approve an extension to the obligations schedule.
2 The basic rate of charge is linked directly to the SDR interest rate by a coefficient that is fixed each financial year. The basic rate of charge therefore fluctuates with the market rate of the SDR, which is calculated on a weekly basis. The basic rate of charge is adjusted upward for burden sharing to compensate for the overdue charges of other members (see Box II.9 in Pamphlet 45).
3 The surcharge on high levels of credit outstanding under Stand-by Arrangements (SBA) and the Extended Fund Facility (EFF) is 100 basis points for credit over 200 percent of quota, and 200 basis points for credit over 300 percent of quota. This surcharge is designed to discourage large use of IMF resources.
4 For PRGF-eligible members, the rate of charge may be subsidized to 0.5 percent per annum, subject to the availability of subsidy resources.
5 The surcharge on the Supplemental Reserve Facility (SRF) is 300-500 basis points, with the initial surcharge of 300 basis points rising by 50 basis points after one year and each subsequent six months. The surcharge increases over time in order to provide an incentive for repurchases ahead of the obligation schedule.
6 These charges do not apply to the Poverty Reduction and Growth Facility.
7 Commitment charge does not apply to Compensatory Financing Facility and Emergency Assistance.

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