Following further weakening of global growth and low-income countries’ declining ability to weather the crisis, the IMF said it approved a second extension to the exceptional interest waiver on loans under its Poverty Reduction and Growth Trust (PRGT).
The move, approved by the IMF Executive Board, extends the waiver through 2014.
In addition, the IMF announced a postponement by one year to end 2014, of the next review of PRGT interest rates.
“The Executive Board decision to keep interest rates at zero for all concessional loans for a further two years is testament to the Fund’s continued support for low-income countries since the global economic crisis hit in 2009,” said IMF Managing Director Christine Lagarde.
Lagarde said the zero-interest rate extension follows other recent steps by the IMF to bolster lending to poorer countries that include increased resources, higher borrowing limits, and more flexible terms.
She said these moves stem from the major overhaul of the Fund’s support programmes for low-income countries in mid-2009, which created a new framework for loans to the world’s poorest nations and initially set zero interest rates on concessional loans through 2011.
This is the second extension of the zero interest rates, the IMF said.
After the first biannual review under the PRGT interest rate mechanism in December 2011, the IMF said it decided that the significant downside risks to the global economic outlook required a one year extension, through 2012, of zero interest rates on concessional facilities.
After the global financial crisis first erupted in 2008, the IMF said it stepped up its lending to Caribbean and other low-income countries to combat the impact of the ensuing recession.
Initially, the IMF said poorer countries succeeded in adjusting policies to offset the worst effects of the crisis.
But it said this success was partially reversed in 2011, with many low-income countries having limited fiscal space and running current account deficits that were higher than pre-crisis levels.
The IMF said low-income countries face the slow pace of the global recovery and increased volatility in food and fuel prices.
It said a recent review of low-income countries facilities noted a strong and continuous demand for fund support.
According to the IMF, empirical evidence shows that, over the long term, IMF-backed programs help raise growth, reduce poverty, and boost resilience to shocks in low-income economies.
The IMF said the PRGT replaced an earlier support programme and has been fully operational since January 2010.
It said lending commitments to low-income countries have been approved under all three PRGT facilities, the Extended Credit facility, Standby Credit Facility and the Rapid Credit Facility.
The IMF said these facilities allow for greater access to financing and offer more flexible terms than previously.
In response to the increasing financial needs of low-income countries during the global financial crisis, the IMF said its concessional lending increased significantly from US$1.2 billion in 2008 to US$3.8 billion in 2009, and US$1.8 billion in 2010 to US$1.9 billion in 2011.