Rapid Financing Instrument Research Articles

Review of Experience with The Food Shock Window Under The Rapid Financing Instrument and The Rapid Credit Facility

Review of Experience with The Food Shock Window Under The Rapid Financing Instrument and The Rapid Credit Facility

Review of The Cumulative Access Limits Under The Rapid Financing Instrument and The Rapid Credit Facility

Review of The Cumulative Access Limits Under The Rapid Financing Instrument and The Rapid Credit Facility

Arab Republic of Egypt

Egypt exhibited resilience to the COVID-19 pandemic shock following timely policy response supported by the 2020 Rapid Financing Instrument (RFI) and 2020–21 Stand-By Arrangement (SBA). While performance under the SBA was strong, the immediate health crisis delayed efforts to re-invigorate much needed structural reforms while high public debt vulnerabilities continued to expose the country to changes in global financial conditions and investor sentiments. As economic recovery gained momentum during FY2021/22, imbalances also started building amidst a stabilized exchange rate. The outbreak of Russia’s war on Ukraine crystallized pre-existing pressures, giving way to capital outflows and large reserves losses while high commodity prices led to rising inflation. Trade spillovers have also been significant given Egypt’s dependence on Russia and Ukraine for wheat and tourism. In October, the authorities took bold policy actions to unwind prior policy distortions including a shift to a flexible exchange rate while taking measures to help shield the Egyptian population from a mounting cost-of-living crisis. But global uncertainty casts a long shadow on Egypt’s recovery and the longstanding need for advancing deep structural reforms to spur sustainable, inclusive, and job-rich growth remains.

MULTILATERAL SUPPORT VIA INTERNATIONAL ORGANIZATIONS TO STRENGTHEN THE ECONOMY OF UKRAINE IN ITS KINETIC RESISTANCE TO RUSSIA’S AGGRESSION

This article analyzes the foreign aid obligations and multilateral support commitments to Ukraine by the G7 countries and the EU in term of securing financial, military and humanitarian aid in the kinetic resistance to Russia’s aggression. The focus is on the instruments of financial support that are used to supply Ukraine with military equipment as well as the EU's support mechanisms for Ukraine, in particular those used by the European Peace Fund, EU macro-financial aid programs, the European Bank for Reconstruction and Development, and the European Investment Bank, among others. The author reports on her monitoring of assistance to Ukraine by international organizations through IMF programs within the framework of the Rapid Financing Instrument, the World Bank's emergency aid package, donor funds of the Solidarity Fund as well as financial support for refugees. Then the author highlights specific features of the large-scale restrictive economic, financial and budgetary measures targeting Russia in the defense, food and energy sectors, which Ukraine’s partners have already implemented, and offers recommendations for the further implementation of interconnected and systemic solutions. Further steps include a number of economic measures that can be applied because of the kinetic war of the Russian Federation against Ukraine. They ought to be coupled with an expanded toolkit for multilateral assistance to Ukrainian sectors and enterprises that suffered because of the large-scale military invasion of the Russian Federation in Ukraine. In conclusion, the author indicates essential features, key elements and points out the main directions of multilateral support of international organizations in strengthening the economy of Ukraine.

Proposal for a Food Shock Window Under the Rapid Financing Instrument and Rapid Credit Facility

Proposal for a Food Shock Window Under the Rapid Financing Instrument and Rapid Credit Facility

Ukraine: Request for Purchase under the Rapid Financing Instrument and Cancellation of Stand-by Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Ukraine;

"Volume 2022 (2022): Issue 074 (Mar 2022): Ukraine: Request for Purchase under the Rapid Financing Instrument and Cancellation of Stand-by Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Ukraine;" published on 10 Mar 2022 by International Monetary Fund.

Bolivia: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Bolivia

Following the October 2020 election, the new administration moved to tackle the devastating human and economic effects of the COVID-19 pandemic. The economy shows signs of recovery from its 8.8 percent contraction in 2020. However, fiscal imbalances have increased and international reserves continue to fall. On February 12, Bolivia repurchased the 240.1 million SDR purchase under the Fund’s Rapid Financing Instrument (that was approved by the Fund’s Executive Board in April 2020).

Temporary Modifications To Access Limits Under The Large Natural Disaster Window Of The Rapid Credit Facility And Of The Rapid Financing Instrument

To help support members faced with the COVID-19 pandemic, the Fund temporarily increased certain access limits to its emergency financing (EF) instruments, i.e., Rapid Credit Facility (RCF) and Rapid Financing Instrument (RFI). While this expanded support has been critical to help countries manage the pandemic, the increase in access limits was not applied to the Large Natural Disasters (LND) windows within the EF toolkit, reducing the flexibility to respond to such LNDs. This paper proposes to temporarily increase by 50 percent of quota the annual access limit (AAL) and cumulative access limit (CAL) under the LND windows of the RCF and RFI. The changes to the “LND windows” would be in effect through end-December 2021, in line with the other temporary changes of access limits under EF instruments. The case for further extensions to all the temporarily increased EF AALs and CALs will be examined after the 2021 Annual Meetings.

Costa Rica

Costa Rica has been hit hard by the COVID-19 pandemic, notwithstanding the authorities’ proactive policy response and the country’s well-established universal healthcare system. The socio-economic impact has been significant, exacerbating an already fragile outlook and pre-existing imbalances, with a significant toll on economic activity and unemployment—especially among women and the young. The shock has further weakened the country’s fiscal position, undermining the expected yields from the ambitious fiscal reform launched in late 2018, and generated a large financing gap. Financial support through the Fund’s Rapid Financing Instrument (RFI) in 2020 provided temporary relief to respond to the pandemic, including by catalyzing financial assistance from other official partners, but financing needs remain sizable over the medium term.

Republic of Kosovo

Kosovo has been hit hard by the COVID-19 pandemic. Despite policy support, economic activity is estimated to have fallen 6 percent in 2020 on account of the combined effect of strict domestic containment measures and international travel restrictions. The fiscal deficit increased to 7.7 percent of GDP, given the large fall in tax revenues and the implementation of mitigation and recovery measures of 4.2 percent of GDP. The current account deficit is estimated to have increased to 7.5 percent of GDP mainly due to a large decline in diaspora-related inflows, most notably in tourism. Gross international reserves declined but remain adequate in part due to the purchase under the IMF’s Rapid Financing Instrument (RFI) in April 2020 and the use of other external financing. Banks have weathered the recession well to date, and the high pre-COVID19 liquidity levels and ample capital buffers bode well for the system’s stability.

Egypt and The IMF: Should Governance Be Good To Get Money?

On 24th of September 2020, the Egyptian President ratified the Law No. 194 of 2020 on the Central Bank and the Banking Sector, completely replacing the Law No. 88 of 2003 regulating such a sector. It is worth noting that such a step was part of the negotiations process between the Egyptian Government and the IMF on the Egyptian request of a 2.7 billion dollars grant through the Rapid Financing Instrument (RFI) of the latter when the Egyptian officials expressed the intent to enact a law securing more financial stability. Such a 116-page law of 241 articles regulating the leading national financial regulator and its interactions with the banking sector would of course need a comprehensive analysis of its conformity with the international standards of good practice of governance. However, we have chosen to shed the light on some major controversial issues raised by such a law. Firstly, we would discuss some transparency concerns associated with the articles of the new law. Secondly, both the appointment and removal powers over the Governor of the Central Bank and its Board Members are assessed. Thirdly, the balance of powers between the Governor and the Board Members is analyzed.

Review of Enhanced Access Limits Under the Rapid Credit Facility and Rapid Financing Instrument

The temporary increase in access limits under IMF emergency financing instruments will expire on October 5, 2020, unless extended. Access limits under emergency instruments (the Rapid Credit Facility (RCF) and Rapid Financing Instrument (RFI)) were increased in April 2020 for a period of six months, from 50 to 100 percent of quota annually and from 100 to 150 percent of quota cumulatively. The increased limits are subject to review and can be extended before their expiration. It is proposed to extend the period of higher access limits for emergency financing for a period of six months, through April 6, 2021. Against a background of continued pandemic-related disruption, staff expects there could be significant demand for emergency lending in the October 2020–April 2021 period, including from countries with pending requests and from countries that received emergency support at levels less than the maximum amounts available. A six-month extension would give more time for countries to benefit from higher access limits under emergency financing.

Seychelles

COVID-19 has had a severe economic impact on Seychelles through the implementation of strict domestic measures to contain the spread of the virus and the related global spillovers. The authorities have responded with measures to mitigate the economic fallout on businesses and households. To help address the urgent balance of payments need arising from the pandemic, the Executive Board approved on May 8, 2020 the authorities’ request for emergency financing under the Rapid Financing Instrument (RFI) of SDR 22.9 million, equivalent to 100 percent of quota (IMF Country Report No. 20/170).

Gabon

Since the approval of the first RFI request on April 9, 2020 (IMF Country Report No 20/109), weaker external demand and a more pronounced impact of containment measures have further deteriorated growth prospects and worsened external and fiscal positions. The authorities are requesting a purchase under the Rapid Financing Instrument (RFI) of 50 percent of quota (SDR 108 million) to be used as budget support to help address urgent balance of payment (BoP) needs and mitigate the risk of disorderly fiscal or BoP adjustment. This additional request will bring the total purchases under the RFI to 100 percent of quota in 2020.

Jamaica

The COVID-19 shock hit Jamaica only a few months after the successful completion of its precautionary Stand-By Arrangement with the Fund, which was underpinned by strong ownership and civil society oversight. Jamaica’s established track record of economic reforms has created buffers that are invaluable today in responding to the COVID-19 crisis. However, the domestic impact of the outbreak, increasing fiscal needs, falling remittances, and a sudden stop in tourism receipts are generating a sizable balance-of-payments need. The authorities are, therefore, requesting emergency financial support under the Rapid Financing Instrument (RFI) of 100 percent of quota (SDR 382.9 million or about US$520 million).

Kyrgyz Republic

The outbreak of the COVID-19 pandemic has weakened the macroeconomic outlook. The authorities have launched a health care contingency plan and an initial package of economic measures, together totaling $31 million (0.4 percent of GDP), and are preparing a second, larger package of economic measures of about $400 million (5.2 percent of GDP). To help address an urgent balance of payments need arising from the pandemic, estimated at about $500 million, the authorities request an additional purchase under the Rapid Financing Instrument (RFI) of 33.3 percent of quota (SDR 59.2 million) and a disbursement under the Rapid Credit Facility (RCF) of 16.7 percent of quota (SDR 29.6 million) under the “exogenous shock” window of the RCF. This follows Board approval on March 26, 2020 of the authorities’ earlier request for the same amounts, before the doubling of the annual access on emergency financing under the “exogenous shock” window of the Rapid Credit Facility (RCF) to 100 percent of quota was approved on April 6, 2020. This additional request will bring the total purchases under the RFI and the disbursements under the RCF to 100 percent of quota in 2020.

Nigeria

This paper presents Nigeria’s Request for Purchase Under the Rapid Financing Instrument (RFI). The authorities’ immediate actions to respond to the crisis are welcome. The short-term focus on fiscal accommodation would allow for higher health spending and help alleviate the impact of the crisis on households and businesses. Steps taken toward a more unified and flexible exchange rate are also important and unification of the exchange rate should be expedited. Once the coronavirus disease 2019 crisis passes, the focus should remain on medium-term macroeconomic stability, with revenue-based fiscal consolidation essential to keep Nigeria’s debt sustainable and create fiscal space for priority spending. Implementation of the reform priorities under the Economic Recovery and Growth Plan, particularly on power and governance, remains crucial to boost growth over the medium term. The emergency financing under the RFI will provide much needed liquidity support to respond to the urgent balance of payments needs. Additional assistance from development partners will be required to support the government’s efforts and close the large financing gap.

Republic of Kosovo

This paper discusses Republic of Kosovo’s Request for Purchase Under the Rapid Financing Instrument (RFI). The coronavirus disease 2019 (COVID-19) pandemic and the associated containment measures have severely weakened Kosovo’s economic outlook. The economy is expected to contract by 5 percent in 2020 as tourism receipts, remittances, exports of goods, and foreign direct investments will decrease due to travel restrictions and the effect of COVID-19 in trading partners and remittance-originating countries. The deteriorated economic outlook is expected to result in external and fiscal financing gaps. The RFI provides rapid and low-access financial assistance to member countries facing an urgent balance of payments need, without the need for a full-fledged economic program or reviews. It can provide support to meet a broad range of urgent needs, including those arising from commodity price shocks, natural disasters, conflict and post-conflict situations. Financial assistance under the RFI is provided in the form of outright purchases.

Enhancing the Emergency Financing Toolkit—Responding To The COVID-19 Pandemic

The COVID-19 pandemic is taking a human toll and has unleashed a series of shocks on the Fund’s entire membership, creating severe disruption in the global economic and financial system. As a result, many emerging market and developing country (EMDC) members face urgent and unprecedented financing needs, creating significant immediate demand for Fund resources. In order to respond to members’ large and urgent financing needs, the paper proposes to enhance the Fund’s emergency financing toolkit, through a temporary increase in access limits for both the Rapid Financing Instrument (RFI), available to all members, and the Rapid Credit Facility (RCF), available to Poverty Reduction Growth Trust-eligible members only. It is proposed to increase these access limits for a proposed period of six months, which may be extended by the Executive Board. A companion Board paper sets out proposals to accelerate Board consideration of member requests for financing under the RCF and RFI, completion of reviews and requests for changes in access in existing arrangements, and requests for grant assistance under the Catastrophe Containment and Relief Trust.

Streamlining Procedures for Board Consideration of The Fund’s Emergency Financing During Exceptional Circumstances Involving A Pandemic

The COVID-19 pandemic has inflicted an unprecedented shock on the global economy and created an enormous demand for Fund resources. To accelerate processing and approval of members’ requests in such circumstances, the paper proposes measures to expedite Board consideration and approval of requests for purchases and/or disbursements under the Rapid Financing Instrument and/or the Rapid Credit Facility, respectively, completion of reviews and requests for changes in access in existing arrangements, and requests for assistance under the Catastrophe Containment and Relief Trust (CCRT), by shortening the circulation period for Board documents. The paper also proposes extending the use of the shortened circulation period to selected Article IV consultations necessary for use of Fund resources during a global pandemic. Management will also streamline internal procedures to accelerate program processing and reduce the burden on the Fund’s administrative capacity, and will seek the support of creditors to expedite the processing of financial transactions under COVID-19 emergency financing.