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IMF says it hears calls from Region for aid policy changes

26 October 2020

BRIDGETOWN, Barbados, CMC – The International Monetary Fund (IMF) says it has heard the calls from small island developing states (SIDS), including those in the Caribbean, at the methods used by the developed countries and the international financial agencies to provide financial assistance to them.

Barbados Prime Minister Mia Mottley recently said middle-income countries need “fair and predictable” access to non-market finance based on their vulnerability.

“We have heard the argument about vulnerability loud and clear and are trying to study how best to respond to this concern,” IMF Deputy Manging Director, Tao Zhang, told the Caribbean Media Corporation (CMC) in an exclusive interview.

IMF Deputy Manging Director, Tao Zhang

He said that the Fund’s Rapid Financing Instrument already provides middle-income countries with emergency access to very low-cost borrowing, with no ex-post conditionality.

“Moreover, annual borrowing limits have been increased in the context of the (coronavirus (COVID-19) pandemic so that emergency financing can be substantial when needed the most.

“Beyond this emergency financing, all members can request additional support, linked to policy reforms, drawing on the IMF’s war chest of around one trillion US dollars in quota and borrowed resources. This provides scope for substantial additional financing to countries in the Caribbean.”

Zhang told CMC that the IMF will continue to adapt its lending policy to the “unprecedented uncertainty, by increasing the flexibility of programme design and streamlining conditionality to ensure more tailored support and foster national ownership”.

St Vincent and the Grenadines Finance, Economic and Planning Minister, Camillo Gonsalves, said recently that Caribbean countries need immediate and innovative responses to this regional calamity.

“Our language should be debt relief, debt relief, swap, and suspension. Six months after the pandemic, COVID-19 has amplified the vulnerabilities of our countries, which are not only facing liquidity problems, but also financial solvency,” Gonsalves said.

Zhang said debt issues, and debt relief, have been high on the Fund’s agenda, adding “we are helping our members tackle debt issues through action on several fronts”

He said the Washington-based financial institution is exploring ways to close gaps in the international financial architecture to make debt resolution more efficient.

“The IMF has been contributing to improving sovereign debt resolution including by promoting the widespread adoption of enhanced collective action clauses in international sovereign bonds. A recent paper prepared for the G20 identifies gaps in sovereign debt resolution for private claims and suggests reform options to strengthen the resolution toolkit.

“We continue to upgrade our debt-related toolkits. For example, the Board reviews of our Debt Limits Policy and Market-access and debt sustainability Analysis, are targeted for October and December 2020, respectively. These would also contribute to debt transparency.

“In addition, the IMF and World Bank are implementing a multipronged approach (MPA) to address debt vulnerabilities. The MPA supports improved debt monitoring, enhanced early warning systems, greater debt transparency, stronger debt management capacity building and outreach to creditors and borrowers to raise awareness of debt issues,” Zhang told CMC.

Earlier this month, Commonwealth Finance Ministers, including those in the Caribbean, issued their first joint statement in over a decade, in which they called on the G20, Paris Club, World Bank and the IMF to extend financial support to vulnerable nations given the deep and widespread economic impact of the COVID19 pandemic.

But Zhang maintained that the IMF has been providing sizeable financing to many of its member countries, enhancing the lending toolkit to meet their needs, and supporting countries with debt restructuring and profiling.

“Let me give you some specific examples of how we are supporting our member countries: We temporarily doubled access to our emergency facilities—the Rapid Financing Instrument available to all our members and the concessional Rapid Credit Facility for our low-income members.

“We recalibrated and/or augmented IMF-supported programmes under the standard lending facilities—such as the Stand-By Arrangement, the Extended Credit Facility or the Extended Fund Facility. This was followed by a temporary increase of the normal annual access limits under both the GRA (from 145 to 245 per cent of quota) and the PRGT (from 100 to 150 per cent of quota) to provide additional borrowing room through April 2021.”

Zhang said that as of October 9, this year, 81 countries have received support under all lending facilities amounting to just over US$100 billion since the start of the crisis, “and as I noted earlier, that includes about one billion US dollars to the Caribbean”.

He said that the Fund’s Catastrophe Containment and Relief Trust (CCRT) is providing substantial debt relief to the most vulnerable countries.

“So far 29 eligible member states have received CCRT grants to cover up to a total of SDR 679 million (US$956 million) in IMF debt service for a two-year period, ending April 2022.

“The Fund is also supporting the Debt Service Suspension Initiative (DSSI) endorsed by the G20/Paris Club, which is now benefitting 44 of 73 eligible countries. The initiative is estimated to have freed up about five billion US dollars – 0.4 percent of gross domestic product GDP) – during 2020 to help LICs cope with the health and economic impact of the crisis”

Zhang also noted that during the IMF/World Bank annual meetings, the G20 announced six-month extension that will see it run until at least until June 30, next year.

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