Questions and Answers on the IMF’s $50 Billion Rapid-Disbursing Emergency Financing Facilities

What lending instruments does the IMF have to provide emergency financing to address coronavirus?

The IMF has two facilities—the Rapid Credit Facility (RCF) created in 2009 and Rapid Financing Instrument (RFI) set up in 2011— that provide emergency financial assistance to member countries without the need to have a full-fledged program in place. These loans can be disbursed very quickly to assist member countries implement policies to address emergencies such as the coronavirus.

Financing under the RCF is available to low income countries. It carries a zero interest rate, has a grace period of 5½ years, and a final maturity of 10. Members have used this facility 29 times, including last year for Mozambique in the wake of Cyclone Idai and in 2014-15 for Guinea and Liberia to confront the Ebola outbreak. Financial assistance provided under the RFI is subject to the same financing terms as the  Stand-By Arrangement (interest rates are currently about 1½ percent), and should be repaid within 3¼ to 5 years. Members have used this facility five times  – for instance, in 2016, the IMF provided an RFI emergency loan to Ecuador after one of the strongest earthquakes in decades.

What is the breakdown of $50 billion emergency financing available under IMF facilities?

Under both the RCF and RFI facilities, member countries can draw up to 50 percent of their quota—their share in the IMF’s capital. Total emergency lending to low income countries available under the emergency financing facilities is $10 billion. For emerging markets, we looked at those member countries markets that could potentially approach us for financial support and excluded those who have ample reserves, steady access to the financial markets, or existing IMF precautionary facilities such as Mexico. Emergency financing available for this group would amount to $40 billion.

The total number of countries with access of up to $50 billion under these two facilities or augmentation of existing arrangements is about 130. In both cases, we have excluded members that either have arrears to the Fund and/or World Bank or where we have assessed the debt situation to be unsustainable. The Fund is prevented by its policies to lend in such circumstances.

Who exactly within the countries receives the funds?

The balance of payment needs emerging from coronavirus could come from different sources, including direct health expenditure and economic spillovers. The funds are lent to the authorities (government or central bank).

The IMF Managing Director mentioned in her blog that many countries have expressed interest in help from the IMF. Are these countries expressing interest in the regular IMF programs, or in the $50 billion in emergency funding announced by the MD earlier this month? Or is it a combination of the two types of financing?

The countries that have expressed interest in financing are a mix of countries, some of which currently have programs and some don’t currently have programs but are looking for rapid financing.

Expressing an interest does not necessarily mean a formal request has been made but that countries are discussing options for assistance. The most logical option for many of these countries would be to explore the emergency financing facilities under which MD Georgieva said $50 billion in financing would be available.

What are the requirements for countries to qualify for the US$50 bn available resources to help tackle the Coronavirus related impacts? Can any member country apply? What about countries under programs at the moment? What about countries who are undergoing debt restructuring processes to re-establish debt sustainability?

Any IMF member may apply. There are some requirements for support under the RCF and RFI emergency financing instruments,including that the county’s debt is sustainable or on track to be sustainable, that it has urgent balance of payments needs, and that it is pursuing appropriate policies to address the crisis.

For countries that have existing Fund arrangements in place, it may be appropriate to augment the arrangements, or in cases where that may not be feasible to do on a timely basis, they may request support under the RCF or RFI.

As noted, a country’s debt needs to be considered sustainable or on track to be sustainable for the Fund to provide support. We take into account any debt restructuring operation underway and its prospects for success, which underscores the importance of every stakeholder making an effort to support countries in distress.

Can you explain the process and timeline when a country makes a formal request for the US$50 bn available resources?

After a country has formally requested support, staff will assess qualification requirements, work with the authorities to prepare a letter of intent, and prepare a staff report for the IMF Executive Board.

How quickly could we see financial assistance to them?

We are expediting members’ requests, but the speed of disbursements depends very much on individual circumstances.

Are the existing US$ 50 billion financing facilities enough in light of the recent developments?

The $50 billion provides an order of magnitude for possible requests for our rapid financing facilities; the Fund’s total lending resources amount to about $1 trillion. 

Could you remind us how the IMF can mobilize $1 trillion?

Resources for IMF loans to its members on non-concessional terms are provided by member countries, primarily through their payment of quotas. Multilateral and bilateral borrowing serve as a second and third line of defense, respectively, by providing a temporary supplement to quota resources. These borrowed resources played a critical role in enabling the IMF to support its member countries during the global economic crisis.

The IMF’s current total resources amounting to about SDR 975 billion translate into a capacity for lending or “firepower” of about SDR 715 billion (around US$ 1 trillion), after setting aside a liquidity buffer and considering that only resources of members with strong external position are used for lending.

For more information, please see factsheet “Where the IMF Gets Its Money”: https://www.imf.org/en/About/Factsheets/Where-the-IMF-Gets-Its-Money

Will an increase of the total US$1 trillion firepower be needed? Is this being discussed?

The IMF is well resourced to meet the financing requests of its member countries, and we stand ready to deploy our balance sheet to assist our member countries in this difficult time.

Compliments of the International Monetary Fund.