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IMF LENDING
Financial assistance does the IMF offer?
Unlike development banks, the IMF does not lend for specific projects. Instead, the IMF
provides financial support to countries hit by crises to create breathing room as they
implement policies that restore economic stability and growth. It also provides
precautionary financing to help prevent crises. IMF lending is continuously refined to
meet countries’ changing needs.

Causes of crisis
The causes of crises are varied and complex. They can be domestic, external, or both.
Domestic factors include inappropriate fiscal and monetary policies, which can lead
to large current account and fiscal deficits and high public debt levels; an exchange rate
fixed at an inappropriate level, which can erode competitiveness and result in the loss of
official reserves, and a weak financial system, which can create economic booms and
busts. Political instability and weak institutions also can trigger crises.
External factors include shocks ranging from natural disasters to large swings in
commodity prices. Both are common causes of crises, especially for low-income
countries. With globalization, sudden changes in market sentiment can result in capital
flow volatility. Even countries with sound fundamentals can be severely affected by
economic crises and policies elsewhere.
The COVID-19 pandemic was an example of external shock affecting countries across
the globe. The IMF responded with unprecedented financial assistance to help
countries protect the most vulnerable and set the stage for economic recovery.

Forms of Crisis

1) Balance of payment problems occur when a nation is unable to pay for

essential imports or service its external debt.
2) Financial crises stem from illiquid or insolvent financial institutions.
3) Fiscal crises are caused by excessive deficits and debt.

Often, countries that come to the IMF face more than one type of crisis as
challenges in one sector spread throughout the economy. Crises can slow
growth, increase unemployment, lower incomes, and create uncertainty,
leading to a deep recession. In an acute crisis, defaults or restructuring of
sovereign debt may be unavoidable.

How IMF lending helps 

IMF lending gives countries breathing room to adjust policies in an orderly manner,
paving the way for a stable economy and sustainable growth. Policy adjustments will
vary depending on the country’s circumstances. For example, a country facing a sudden
drop in the price of key exports may need financial assistance while moving to
strengthen its economy and diversify its exports. A country facing severe capital
outflows may need to restore investor confidence by addressing the problems that led to
capital flight —perhaps interest rates are too low, the budget deficit and debt are
growing too fast, or the banking system is inefficient or poorly regulated.
Without timely IMF financing, a country’s adjustment process may be more abrupt and
difficult. For example, if investors are unwilling to provide new financing, the country
may suffer a painful compression of government spending, imports, and economic
activity. IMF financing facilitates a more gradual adjustment. Because IMF lending
usually is accompanied by a set of corrective policy actions, it signals that appropriate
policies are being put in place, encouraging the return of private investors. IMF lending
also aims to protect the most vulnerable population via policy conditionality. In low-
income countries, IMF lending is also typically meant to catalyze financial support from
other donors and development partners.
The IMF lending process is flexible. Countries that maintain a commitment to sound
policies may be able to access resources with no or limited conditionality. The same is
true for certain urgent and immediate needs covered by emergency financing
instruments.

IMF lending instruments

The IMF has several lending instruments to meet the different needs and
specific circumstances of its members. 

IMF members have access to the General Resources Account on non-

concessional terms (market-based interest rates), but the IMF also provides
concessional financial support (currently at zero interest rates) through
the Poverty Reduction and Growth Trust, which is better tailored to the
diversity and needs of low-income countries. The recently
established Resilience and Sustainability Trust offers longer-term financing to
low-income and vulnerable middle-income countries seeking to build
resilience to external shocks at affordable interest rates. 
external shocks at affordable interest rates. 
Reflecting different country circumstances and challenges, GRA-supported
programs are expected to resolve the country’s balance of payments
problems during the program period, while PRGT programs envisage a longer
duration for addressing them. The RST provides financing to address longer-
term challenges, including climate change and pandemic preparedness.

Purpose Financin Conditionality

Facility Duration
g
Present, prospective, or potential GRA Up to 3 years but Ex-post, and ex-ante
SBA
balance of payments need usually 12-18 months (prior actions) if needed

SCF PRGT 1 to 3 years

Protracted balance of payments EFF GRA Up to 4 years Ex-post, with focus on

need/medium-term assistance structural reforms. and
ECF PRGT 3 to 4 years, ex-ante (prior actions) if
extendable to 5 years needed

Urgent balance of payments RFI GRA Outright purchase No reviews /ex-post

need/emergency financing conditionality, but ex-
assistance PRGT Outright ante (prior actions)
RCF possible
disbursement

Present, prospective, or potential FCL GRA 1 or 2-year Ex-ante (qualification

balance of payments need (very criteria) and annual
strong fundamentals and policies) reviews for the 2-year
arrangements

Potential moderate short-term SLL GRA Approved for a Ex-ante (qualification

balance of payments needs period of 12 months criteria)
arising due to capital account with successor SLLs
pressures (very strong possible
fundamentals and policies)

Present, prospective, or potential PLL GRA 6-month (liquidity Ex-ante (qualification

balance of payments need (sound window) or 1 or 2- criteria) and ex-post
fundamentals and policies) year

Longer-term prospective balance RSF RST Minimum duration 18 Ex-post, concurrent IMF
of payments need or balance of months, cannot
UCT-quality program
payment need created with exceed the concurrent
policies UCT-quality program required
 Non-financial/signaling SMP1 (incl. NA 6 to 18 months, Ex-post, and ex-ante
instruments PMB) longer durations not (prior actions) if needed
precluded

PSI NA 1 to 4 years, Ex-post, and ex-ante

extendable to 5 years (prior actions) if needed

PCI NA 6 months to 4 years

This instrument does not require the IMF Executive Board’s approval.
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