IMF extends zero interest rates on poorer-country loans

The International Monetary Fund(IMF)has approved a two-year extension to the zero interest rates charged on loans to low-income countries.
The extension is part of a wider strategy to support concessional lending to poorer countries as they combat the effects of the global economic crisis.
Following further weakening of global growth and low-income countries’ declining ability to weather the crisis, the IMF 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 December 21, 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.
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. These moves stem from the major overhaul of the Fund’s support programs 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. After the first bi-annual review under the PRGT interest rate mechanism in December 2011, the IMF 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 stepped up its lending to low-income countries to combat the impact of the ensuing recession. Initially, poorer countries succeeded in adjusting policies to offset the worst effects of the crisis. But 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.
Low-income countries face the slow pace of the global recovery and increased volatility in food and fuel prices. A recent review of low-income countries facilities noted a strong and continuous demand for fund support.
Furthermore, 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.