January 4, 2013
IMF Zero Interest Rates Extended
The International Monetary Fund has approved a two-year extension of zero interest rate loans to Caribbean and other low income countries. The global economic crisis has hit poorer countries extremely hard, and the International Monetary Fund is using the zero interest rate loans to help. Growth has been particularly slow in low income countries and do not generally have the ability to deal with the resulting economic issues.
While many low income countries initially handled the global economic crisis by adjusting their policies that began to change in 2011. Unfortunately, most low income countries had limited fiscal space and began running current account deficits that were higher than pre-crisis levels. As a result, the International Monetary Fund’s concessional lending increased significantly from $1.2 billion in 2008 to $3.8 billion in 2009 and $1.8 billion in 2010 to $1.9 billion in 2011.
The global lack of economic growth lead the International Monetary Fund to approve a second extension to the exception interest waiver on loans under its Poverty Reduction and Growth Trust. The International Monetary Fund also announced that it would postpone the next review of its Poverty Reduction and Growth Trust interest rates, pushing the review until 2014. The Poverty Reduction and Growth Trust replaced an earlier program and has been in effect since January 2010.
The International Monetary Fund’s moves to assist lower income countries, by keeping interest rate at zero, stem from the Fund’s major overhaul beginning in 2009. The overhaul created a new framework for loans to the world’s poorest nations, with the interest rates set at zero through 2011. The Fund’s extension of the zero interest rates is its second. After the Fund first reviewed the Poverty Reduction and Growth Trust interest rates in December 2011, it decided that the significant downside risks to the global economic outlook required a one year extension of zero interest rates on concessional facilities.
As a result of the continuing of the economic crisis, low income countries continue to show a strong and continuous demand for funds. The International Monetary Fund has stated that empirical evidence showed that Fund-backed programs help raise growth, reduce poverty, and boost resilience to shocks in low income economies. The Fund’s lending commitments to low income countries have been approved under all three Poverty Reduction and Growth Trust facilities: the Extended Credit Facility, Standby Credit Facility and the Rapid Credit Facility. The Fund said these facilities allow for greater access to financing and offer more flexible terms than previously.