The Poverty Reduction and Growth Trust (PGRT) is intended to help finance low income countries (LICs) with balance of payment problems. Both the effectiveness and adequate funding of the PRGT have been a major concern. Recently, Jubilee Network USA and other organizations have been pushing the IMF to distribute its excess profits from its gold sales to the PRGT. This year, these efforts resulted in the IMF approving $3.8 billion in excess profits to the PRGT and extending its zero percent interest rate to 2014. Congratulations to Jubilee and all the participating organizations!
Since gold profits technically belong to the member states, these profits cannot be distributed directly to the PRGT. As part of the IMF agreement to fund the PGRT, members have voluntarily agreed to subsidize lending to low income countries by contributing their share of the profits. According to the IMF, the distribution will be effective when members pledge enough to subsidize 90 percent of total amount ($3.8 billion). And as of October 12, 134 countries, representing 90.35 percent, have made this pledge – satisfying the criteria for distribution. This boost to the PRGT’s funds is very encouraging, but will it be enough to help LICs combat macroeconomic shocks?
The IMF estimates that the PRGT will need between 1.5 – 2.6 billion annually over the next decade and expects the $3.8 billion in profits to raise its annual capacity from $1 billion to $1.9 billion. The IMF anticipates that this will keep the PRGT sustainable for the next decade. However, given the IMF’s $36.7 billion loan to Greece this year, $1.9 billion per year seems inadequate to address the potential instabilities of more than 70 low income countries.
Although the Greek loan may be de facto assistance to stabilize the Eurozone (and to some extent the global economy), the IMF will still need to explain why Greece is eligible for more than 2000 percent of its quota and LICs are not – even through the PRGT facilities. This is a problem that is often voiced by finance ministers from LICs. Furthermore, the PRGT ties LICs to the IMF so closely and for so long that the function of the PRGT itself is problematic. For a more complete and deeper evaluation of the PRGT with appropriate recommendations, please read “Enhancing the IMF’s focus on Growth and Poverty Reduction in Low Income Countries.”
For the IMF’s most recent press release, click here
Read the IMF’s September Review of Facilities for Low-Income Countries