3.1 The Concept of International Financial Stability

Defining financial stability by paying attention to the components of the financial system and identifying the stability of the financial system as the stability of markets and financial institutions is proposed by Mitrović Mijatović (2013). The mechanisms facilitating the maintenance of international financial stability, which as mentioned earlier is a global public good, are supervision, regulation, but also financial and technical assistance from the International Monetary Fund.

The monitoring of financial, exchange rate, and economic policies is an important part of the IMF’s work in balancing development and managing global public goods in fulfilling its monitoring function. Indeed, financial, exchange rate, and economic stability are both national and global public goods.

3.2 Surveillance Activities

The IMF’s surveillance activities are governed by the IMF’s Statute, which defines the responsibilities of both member countries and the Fund itself. According to the Statute, each member undertakes obligations concerning the conduct of monetary, exchange rate, and economic policies, in particular those that promote economic growth and ensure financial stability, and entrusts the Fund with the surveillance of the fulfillment of its obligations concerning exchange rate policy and the financial system and makes the reliable information necessary for the surveillance available to the organization. In turn, the IMF undertakes to exercise control over the international financial and monetary system with a view to ensure its effective functioning, particularly its stability. The Fund’s surveillance function is carried out through surveillance at the national level (so-called bilateral surveillance: IMF – state) and at the global level (multilateral surveillance).

The translation of the provisions of Article IV of the IMF’s Articles of Agreement into concrete IMF surveillance activities takes place through decisions on surveillance, which set the direction of the activities. They are supplemented by guidance notes, which specify the principles for the preparation of surveillance analyses. In particular, the IMF is currently conducting analyses of the potential impact of domestic economic policies on the spillover environment and of financial stability issues, including external stability, particularly with regard to two aspects – exchange rates and capital flows. These activities are intended to ensure that the IMF is able to monitor members’ external activities more effectively, engage member countries in constructive dialogue, and promote global economic and financial stability.

The Fund also carries out activities to promote global financial stability and sustainable development, particularly in support of employment growth and a better understanding of countries’ development prospects. These are mainly tasks related to five priorities: the integration and deepening of risk analysis and extrapolation, macro-financial surveillance, increased attention to structural policies (including labor market issues), consistent policy recommendations and expert advice from the Fund, and transparent IMF – member country dialogue (IMF, 2014).

The IMF carries out surveillance of the economic and financial policies of member countries and of the international financial and monetary system using a range of analytical surveillance instruments. Policy advice to members is provided in reports presenting the results of surveillance analysis. These are recommendations that, in the Fund’s point of view, promote domestic and international financial and macroeconomic stability. These recommendations are often the result of the Fund’s cooperation with other international institutions, notably the International Bank for Reconstruction and Development. This cooperation and the issuing of recommendations and regulations to member states by the Fund are carried out by the organization as part of its regulatory function.

Today, the IMF’s bilateral surveillance and regulatory instruments are:

1. Reviews of economies under Article IV of the Statute: are a key instrument of IMF surveillance activities. They are mandatory for member countries and take place annually or on a biennial basis. During the review the risks to a country’s internal and external stability are identified. The review concludes with an IMF report containing an assessment of the country’s current economic situation.

2. Financial systems reviews: aim to stabilize financial systems in member countries, in particular to identify the strengths and risks of the financial system, the quality of the regulatory and supervisory framework, to identify ways to manage key risks, and to analyze its stability and crisis resilience.

3. Reviews of the consistency of national financial standards, codes and good practices with international standards: are an analysis and assessment of the member states’ compliance with international standards and codes in various areas, which include, among others: accounting, anti-money laundering and counter-terrorist financing, banking supervision, transparency of financial and monetary policy, and payments systems. (IMF, n.d.-k)

In turn, when it comes to the IMF’s multilateral surveillance and regulation, these include the following instruments (IMF, n.d.-j):

1. World Economic Outlook (WEO): presents an analysis of the current situation of the world economy and prospects for its development as well as analyses of the most important current problems of the world economy. Spillovers and international interactions are examined.

2. Regional Economic Outlook (REO): are prepared on the basis of WEO reports for: Sub-Saharan Africa, Asia and the Pacific, Europe, the Middle East and Central Asia, Asia and the Pacific and the Western Hemisphere area (USA and Canada and Latin America and the Caribbean).

3. Global Financial Stability Report (GFSR): presents analysis on the most important current issues in global financial stability. It includes analyses of credit, market, and liquidity risks, with particular reference to the situation in emerging markets.

4. Fiscal Monitor (FM): contains analyzes of the public finance sector. The report analyzes – from a national perspective – the impact of the crisis on fiscal policy and the sustainability of public finances.

5. External Sector Report (ESR): analyzes global external developments and provides multilateral assessments of the world’s largest economies, representing over 90% of global GDP. The report includes: an overview chapter that emphasizes multilateral issues and discusses the risks and policies needed to reduce excessive imbalances; an analytical chapter that covers topics relevant to the analysis of external sector dynamics and adjustment mechanisms; and a final chapter that details the assessment of each economy considered.

During the surveillance and regulatory process, the Fund identifies potential risks to macroeconomic and financial stability and identifies necessary adjustments. The primary objective of surveillance and regulation is thus to promote sustainable development using global public goods, both domestically and internationally. At the same time, if necessary, the IMF supports member countries in the preparation and implementation of adjustment and recovery programs, which is often combined with the provision of financing during the implementation period of the programs and technical assistance.

3.3 IMF’s Provision of Financial Resources

Today, as part of its operational function, the IMF provides financial resources to member countries essentially in the form of a repayable loan. The Fund aids members both from its own and borrowed resources. Loans are granted in the form of sales of foreign currencies to countries in exchange for their own currencies, with an obligation to reverse the transaction at a specified date (Dicks-Mireaux, et al., 2000, p. 504). The loan is granted based on an agreement with the Fund, which, depending on the financial instrument concerned, may be general or preferential.¹

The assistance made available by the IMF shall in principle be proportional to the country’s contribution to its capital stock. Obtaining financing is preceded by negotiations between the member and the Fund on the terms and conditions of the adjustment program, the amount of the loan and the choice of the financial instrument to be supported. The proposal of the country concerned is presented in the form of a Letter of Intent. Upon approval of the agreement, funds are transferred on the basis of loan tranches. The disbursement of each subsequent tranche usually takes place after the IMF has assessed the effectiveness of the implementation of the adjustment program by the respective borrower and is usually disbursed on a quarterly basis. The above procedure provides the Fund with an opportunity to influence the effectiveness of structural reforms aimed at improving the economic situation of the country applying for financing. In accordance with the IMF decision of March 24, 2009, the upper limit for loans is now 200% of the value of a country’s contribution to capital per year and no more than 600% in total. Occasionally the Fund may, after an individual assessment of the situation in the recipient country, increase the maximum limits (IMF, 2009).

The scope of contemporary IMF lending assistance includes the following non-preferential facilities available to all member countries (IMF, n.d.-e):

1. –Stand-by Arrangement (SBA) is the International Monetary Fund’s primary lending facility and represent the first option to assist member states in case of balance of payments needs. The SBA facility is designed to help countries resolve short- and medium-term balance of payments problems. The length of the SBA is usually between 12 and 24 months, but not more than 36 months. The loan is repaid within 3.25 to 5 years from the start of the program. SBA s can be used on a precautionary basis, where countries do not borrow approved amounts, but retain the option to do so if conditions deteriorate. The SBA provides flexibility with respect to the timing of IMF disbursements, with the possibility to accelerate them if necessary.
2. –The Extended Fund Facility (EFF) was established in 1974 to help countries resolve medium- and long-term balance of payments problems that have structural impediments requiring fundamental economic reform. Extended Fund Facility (EFF) programs are longer than the SBA, but usually no longer than 3 years at the time of approval, with a maximum extension of an additional year when necessary. However, a maximum period of 4 years is also allowed at the time of approval in order to restore macroeconomic stability and to adequately ensure the member state’s ability and capacity to implement deep and lasting structural reforms. The EFF loan matures between 4.5 and 10 years after the start of the program.
3. –The Flexible Credit Line (FCL), available since 2009, is designed for countries with very strong macroeconomic fundamentals and credible economic policies and is useful for both crisis prevention and resolution. The FCL is granted at the request of a member if certain eligibility criteria are met (ex ante conditionality). The duration is 1 or 2 years (with a periodic review of continued eligibility after 1 year) and the loan repayment period is the same as for the SBA. Unlike the SBA/EFF, the use of funds available under the FCL line is not subject to ex post conditionality, as countries meeting the FCL eligibility criteria are expected to implement appropriate macroeconomic policies. It is possible to draw on the credit line at any time after activation or to treat it as precautionary.
4. –The Precautionary and Liquidity Line (PLL) has been an IMF supplementary lending facility since 2011 to flexibly meet the needs of member countries with sound macroeconomic fundamentals but with certain vulnerabilities that prevent them from using the FCL. A PLL may be granted at the request of a member country if the member meets certain eligibility criteria (ex ante conditionality), with ex post conditionality also lying if available funds are drawn down. PLL contracts can last for 6 months or 1 to 2 years.
5. –The Rapid Financing Instrument (RFI) provides rapid and easily accessible financial assistance to member states facing acute balance of payments needs without the need for a full adjustment program. The RIF applies, inter alia, in cases of urgent needs, including those resulting from commodity price shocks, natural disasters, post-conflict situations and emergency situations resulting from fragility. Financial assistance provided under the RIF is subject to the same financing conditions as for the SBA. A member country requesting emergency assistance is required to cooperate with the IMF in its efforts to resolve balance of payments problems and to outline the general economic policies it proposes to pursue.

The assistance placed at the disposal of members by the Fund is, therefore, aimed at helping individual countries overcome balance of payments problems, improve their macroeconomic and financial situation, and provide them with conditions for sustainable development, both economically and socially. Nowadays, the IMF’s priority is also to prevent crises and to promptly mitigate their consequences for international stability. The pursuit of this goal manifests itself, inter alia, in the increasingly frequent granting of credit to countries in need in excess of the exceptional access amount and in taking precautionary steps, i.e., the use of precautionary loans on offer. In addition, there have also been changes related to the conditions for borrowers. The Fund now seeks to optimize these conditions so that they meet the objectives of IMF’s activity (Edwards & Hsieh, 2011, p. 79).

3.4 The Specific Case of Ukraine

Ukraine is the IMF’s largest borrower. In the years 1994–1995, it used a loan of US$763.1 million under the Systemic Transformation Facility to sustain its balance of payments. It was the only program that was implemented in its entirety.

In the next 3 years, annual stand-by programs for a total amount of US$1.9 billion were implemented, supporting the exchange rate of the national currency, and stabilizing the transition from centrally planned economy to a free market. However, in March 1998, the IMF suspended the program due to the failure of the government to deal with the budget deficit and the money supply. Since 1998, Ukraine has become a beneficiary of the Extended Fund Facility, using only slightly more than half of the funds (US$1.19 billion out of US$2.6 billion) allocated in 1998–2002 to increase the foreign exchange reserves of the National Bank of Ukraine.

In the following years, until the crisis on world financial markets in 2008, the cooperation between the IMF and Ukraine was based on the principles of technical support. For the fourth time, it benefited from financial assistance under the Emergency Financing Mechanism in 2008 to the amount of US$16.5 billion, of which it received US$10.6 billion in three tranches (64% of the allocated amount). This program was replaced in 2010 by a new 2.5-year program of US$15.1 billion, of which US$3.39 billion had been used by 2013 (22.5%). The sixth stage of IMF support started in 2014 after the approval of a new stand-by loan.

However, due to the economic and political crisis caused by the Russian aggression, Ukraine used only 26% of this amount, and in 2015 this loan was replaced with a 4-year EFF program (US$8.7 billion). In 2018, a new EFF program for Ukraine was adopted for a period of 14 months and an amount of US$3.9 billion, which was completed on February 17, 2020. After difficult negotiations (and the fulfillment of two conditions – the adoption of the banking law and the law on trade in agricultural land) on June 9, 2020, the IMF and the Ukrainian authorities resumed their cooperation by signing an 18-month stand-by agreement of US$5.04 billion to help counter the negative effects of the COVID-19 pandemic, restore the balance of payments, and carry out further structural reforms.

It should be noted that the cooperation between the IMF and Ukraine is conditional. The partners agree on the effects expected from Ukraine after the end of the next aid program. The IMF assesses the implementation of the suggested reforms and decides on the level of their effectiveness. The requirements set by the IMF from program to program are becoming more and more difficult to meet in a short time, which translates into a low level of use of the allocated funds by Ukraine.

The main goal of Ukraine’s cooperation with the IMF so far has been to stabilize the Ukrainian financial system, carry out structural reforms, and create the foundations for sustainable economic growth. However, the funds were mainly used to cover the budget deficit or sustain the balance of payments. Due to late fulfillment of obligations and unused tranches under loan agreements, Ukraine pays the so-called commitment fee.

Nevertheless, the requirements set by the IMF are in line with the planned reforms. At the same time, the funds at the disposal of the IMF are cheaper than commercial loans or money obtained from the issuance of Eurobonds, and the government has managed to implement socially unpopular reforms that have been blocked for many years by oligarch groups or the Ukrainian society. Ukraine’s cooperation with the IMF also offers the possibility of obtaining financing from other international institutions, such as the World Bank, EBRD, EIB, as well as from countries and organizations, e.g., from the USA, EU, Germany, Canada, China (Drabczuk, 2021). As a result of Russia’s aggression in Ukraine, the IMF made another US$1.4 billion available to Ukraine as part of the RFI.

3.5 Technical Assistance

In addition to its surveillance, regulatory, and financial assistance activities, the IMF provides technical assistance for stability and sustainable economic development, which is a very important complement to the organization’s activities. IMF technical assistance can take many forms, such as educational assistance or staff training, advice, workshops, seminars on fiscal, monetary and exchange rate policies, regulation and supervision of financial systems, statistics, and legal frameworks. It aims at strengthening members’ capacity to plan and implement sound economic policies, and at contributing to the effectiveness of member countries’ economic reforms and adjustment programs (IMF, n.d.-f, p. 53). Technical assistance is provided from Headquarters in Washington, through a network of regional technical assistance centers, trust funds and IMF collaborators. Depending on the nature of the assignment, support is in the form of staff missions from Washington or from regional offices for a limited period, or in the form of visits by experts or advisors for periods ranging from a few weeks to several years (IMF, n.d.-m). As regards training activities, the IMF Institute offers courses and seminars every year, as well as online courses. This assistance is aimed at enhancing skills and knowledge of macro-economics and finance, in particular on the prevention and mitigation of financial crises and the restoration of stability in member countries following crises, tax policy and administration, expenditure management and financial integration.

4.1 Concessional Lending for Underdeveloped Member Countries

For the poorest countries and those which are not well positioned on the financial markets, IMF loans are often the only way to obtain external financing. They are granted on concessional terms. The core area of IMF support for the poorest member countries – concessional lending – has evolved over the years to best meet the needs of the beneficiaries of this assistance and to contribute effectively to the implementation of the sustainable development strategy by eradicating poverty and economic and social inequalities, resulting in a sustained high level of economic growth (IMF, n.d.-d). Since the second half of the 1990s, the IMF’s involvement in the creation of new assistance instruments for countries with the lowest level of GNI per capita has increased, as has the value of the financial resources transferred by the Fund for this purpose.

In 1999, the Poverty Reduction and Growth Facility (PRGF) was created. It was structured according to the needs of the lowest income countries. The funds made available under these facilities supported the implementation of poverty reduction programs in individual member states, but also stimulated economic growth in the poorest countries. The PRGF facility existed for 10 years. In 2009 the IMF made changes to the concessional facilities and financial design, transforming the PRGF-ESF into the Poverty Reduction Growth Trust (PRGT), which has been in place since January 7, 2010, to finance the costs of poverty reduction and economic growth in underdeveloped countries under three new facilities that have been made available to them since July 2009 on changes to lending to this group of countries. The PRGT is currently the IMF’s largest trust account. Funds transferred to it by the donors and lenders are made available by the Fund – as administrator of the account – in the form of loans to the poorest countries. The scope of contemporary concessional credit assistance to the lowest income countries from the PRGT includes (IMF, n.d.-e):

1. –The Extended Credit Facility (ECF) was created to better tailor poverty alleviation programs to the individual strategies of countries facing the problem (IMF, 2022a). The ECF functions as one of three contemporary concessional lending facilities for low-income countries. Extended Credit Facility is provided when a member state is experiencing persistent balance of payments difficulties. Members may benefit from such assistance if the situation can only be improved in the medium to long term (IMF, n.d.-c). The objectives of the program concern the improvement of the balance of payments, sustainable economic growth, and the reduction of poverty. A new feature is that the flexibility of the assistance is improved, and it is better tailored to the needs of the beneficiary. The aid is granted for 3 to 4 years, in particular cases up to 5, with the possibility of renewal.
2. –Funds under the Stand-by Credit Facility (SCF) are available to members with a balanced macroeconomic situation that is sustainable in the long term, but there are risks associated with the possibility of short-term shocks that may cause an imbalance of payments. Therefore, the program is designed to, among other things, help maintain a stable economic situation and ensure economic growth. SCF financing is available to members qualified for preferential assistance. The duration of a loan agreement can range from 12 to 24 months. Countries benefiting from SCF are required to introduce reforms that will achieve a stable macroeconomic position in the short term (IMF, 2022c).
3. –Another type of concessional financial assistance currently available to underdeveloped IMF member countries is the Rapid Credit Facility (RCF). This facility is designed to optimize emergency assistance. The program is targeted at the poorest members that have been affected by sudden balance of payments problems and where a comprehensive recovery program offered by the IMF is either unnecessary or not feasible. Funds are made available in the form of a single disbursement of the total amount of the loan. It is worth noting that the repetition of such a disbursement, even several times (every 3 years), is possible if the imbalance of payments is caused by external shocks (IMF, 2022b). For example, in 2021 the IMF made 87.4 million SDR s (US$125.8 million) available under the SCF to Honduras due to the health crisis and recovery from tropical storms. The program aims to maintain macroeconomic stability while introducing economic and institutional reforms for inclusive growth. Priorities include reforms to improve the quality of fiscal policy, sustain efforts to mobilize revenues, protect social investment and spending, safeguard the financial stability of a public energy company and reforms to increase transparency and budget management (IMF, 2021).

4.2 Technical Assistance to LIC s

At the same time, underdeveloped countries with stable macroeconomic situations and institutions that do not need or do not want PRGT assistance may request non-financial assistance from the IMF under the Policy Support Instrument (PSI) to cooperate in the design of effective economic and structural programs to maintain or reinforce macroeconomic stability, debt reduction, poverty, and sustainable development. They are designed to improve public sector governance, strengthen the financial sector, and build social safety nets in underdeveloped countries. The IMF assesses a country’s economic and financial policies, which are monitored by donors, every 6 months. A PSI can be approved for 1 to 4 years, with a maximum of 5 years. If necessary, a country can avail of SCF and RCF in parallel with PSI, but no ECF facility is available (IMF, n.d.-i).

The IMF also provides technical assistance to LIC s particularly in the areas of public revenue and expenditure management, taxation, banking activities, financial sector stability, exchange rate regimes, economic and financial statistics, and legal problems. This assistance is usually offered free of charge. Technical assistance for less developed countries is manifested in the systematic organization and delivery of training and thematic courses for the administrations of individual member states. Such trainings, conducted in Washington by the IMF Institute and its regional agencies (in Austria, Brazil, China, India, Singapore, Tunisia, and the United Arab Emirates), aim at strengthening the knowledge base of domestic institutions and thus improving the economic and public financial management process at the national level. Technical support also includes advisory and consultative assistance in the conduct of economic policy. The IMF promotes the implementation of appropriate standards, procedures, and the so-called good practices in the management of the economy and the related regulatory institutions. In particular, they refer to three main spheres: the need for transparency in the economic policy pursued and, in the preparation, and presentation of the necessary statistical data (sphere I), the effective supervision of the whole financial sector of a country (sphere II) and the implementation of clear rules of business activity at the microeconomic level (sphere III).

In recent years, the Fund has increased the financial and human resources allocated to the technical assistance. More than 80% of technical assistance funds are spent in countries with a low level of economic development. The IMF also cooperates with donors of development assistance, providing them with expert support on the macroeconomic situation in recipient countries and helping them to effectively channel financial resources to best meet IMF country-specific recommendations (IMF, n.d.-l). At the same time, the IMF attaches great importance to making technical assistance an instrument to increase the effectiveness of surveillance and the adjustment programs implemented.

4.3 Debt Relief for Poor Countries

To contribute to the achievement of sustainable development objectives, in 1996 the IMF started to cooperate with the International Bank for Reconstruction and Development and bilateral lenders. At that time, the G7 summit in Lyon, France, decided to balance the debt burden of the poorest countries under the Heavily Indebted Poor Countries (HIPC) Initiative. The aim was to reduce the external debt of the poorest countries to a level at which they could continue to service it, and to stimulate economic, social, and political reforms to increase growth as well as to reduce poverty. Debt reduction was to come down to eliminating the so-called debt overhang, which means too much debt discouraging investors from investing their money in a country. Overindebtedness means the anticipated increase in taxes for the state to repay the loans. The overhang is the amount that goes beyond the tolerable value, i.e., the state’s ability to service its debt. The elimination of excessive debt is beneficial to the state and its creditors, as it provides a greater guarantee of debt repayment. On the other hand, poverty reduction under the initiative was to shift the funds hitherto needed for debt servicing towards the financing of social objectives such as combating natural disasters, feeding populations and increasing agricultural production, granting micro-credits for economic activities, and improving pension, health, and education systems.

After only 2 years of operation, the HIPC Initiative began to be criticized, mainly because of the low debt burden reduction, the long duration of the reduction process, and excessively demanding eligibility criteria for countries to join the program. Therefore, at the G7 summit in Cologne, Germany, in 1999, the HIPC Initiative was renamed the “Enhanced HIPC Initiative.” It was originally intended to last for 2 years, but in fact has been extended. Its aim is to carry out the debt relief process more quickly, as well as to help more countries and to strengthen the interaction between debt relief and the eradication of poverty and changes in countries’ social policies (IMF, n.d.-b). Therefore, the initiative encompasses multiple dimensions: debt relief, structural and social policy reform with a particular focus on health and basic education services. The program is open to all creditors: bilateral, multilateral, and trade creditors who financed it. The enhanced initiative implies, instead of rigid, floating debt reduction target points that depend on the progress achieved in reforms, a country could achieve debt relief earlier, i.e., before the targets are reached. Indeed, the level of debt relief depends on actual progress and not on projected achievements. The mechanism for granting assistance under the enhanced initiative consists of two stages. In the first stage, countries prepare over a period of 3 years to reach the decision point by developing a poverty reduction strategy. During the second phase, countries apply the policies set out in the decision point to reach the target smooth point. The IBRD and IMF provide transitional assistance, the Paris Club restructures debt in accordance with the Cologne² terms, and other creditors grant transitional debt relief on similar terms in support of a global poverty reduction strategy. The floating target point is linked to the pursuit for at least 1 year of a global poverty reduction strategy, in particular, stabilization and structural adjustment policies. All creditors provide the aid specified in the decision point. This assistance is not subject to any additional conditionality. Therefore:

1. –The Paris Club grants debt relief on Cologne terms.
2. –The other bilateral and commercial creditors grant at least the same debt relief.
3. –International organizations grant debt relief according to the option chosen.

The initiative is funded by the IMF and other international institutions such as the IBRD, the African Development Bank, the Inter-American Development Bank, and the Paris Club. The remainder comes from the participating countries’ creditors.

In 2005, the G8 countries made a proposal to the International Monetary Fund, the International Development Association, and the African Development Fund to assist developing countries on a larger scale than the Enhanced HIPC Initiative. In fact, they proposed the creation of a new debt relief program, dubbed the Multilateral Debt Relief Initiative (MDRI). The aim of the program was complete cancellation of countries’ debts and – thanks to that – freeing up financial resources to help them meet the Millennium Development Goals. Complete cancellation was to be carried out by 2015 by only three organizations without involving the others, especially bilateral creditors. As early as 2007, the Inter-American Development Bank joined the initiative, pledging debt relief to five countries in the western hemisphere (IMF, n.d.-h).

MDRI assistance was intended for countries that had already reached the so-called end point of the HIPC Initiative or had a GNI per capita of less than US$380 and at the same time outstanding obligations to the end of 2004. Liabilities after this date did not include the MDRI. The decision to allocate MDRI funds to a country was made separately by each organization, so the way in which debt relief was implemented varied. In deciding to implement the MDRI, the IMF modified the original G8 proposal to fit the IMF’s modalities and to comply with the principle of equal treatment of members, in this case as regards the use of IMF resources. It was agreed that all countries with a GNI per capita of US$380 or less per year would receive debt relief from the IMF’s own resources, i.e., from the MDRI-I Trust, and countries with a GNI per capita above this threshold from the MDRI-II Trust, i.e., additional contributions from member countries administered by the IMF. To qualify for MDRI assistance, the IMF required evidence of a track record satisfactory to the Fund in

1. –Macroeconomic policy
2. –Implementation of poverty reduction strategies
3. –Public expenditure management

Due to the low eligibility of countries to benefit from MDRI funds on February 4, 2015, the IMF approved the decision to wind down the initiative and transfer the remaining funds of SDR 13.2 million from MDRI-I and SDR 38.9 million from MDRI-II to the Catastrophe Containment and Relief Trust (CCRT), which was established in February 2015 to assist developing countries affected by natural disasters or public health problems such as epidemics. The CCRT initiative puts money, which should go towards debt servicing, to solve the current urgent problems of underdeveloped countries, at its disposal.

In addition, a natural disaster must affect at least a third of the population, destroy a quarter of production capacity, or cause damage worth the equivalent of a country’s GNI. Furthermore, the IMF does not enforce levies and debt repayments for 2 years after the natural disaster, and in exceptional cases of large and persistent external imbalances it can cancel the debt altogether. As far as epidemics are concerned, they must have a negative impact on a country’s economy and spread to others, causing losses of at least 10% of the beneficiary country’s GNI. The country then receives immediate aid equal to 20% of its IMF quota for debt relief. This can be increased if the IMF deems it necessary. At the same time, the beneficiary of the measures should apply the macroeconomic policy reforms indicated by the Fund to restore balance of payments sustainability.

As of December 2021, 31 member countries have approved a debt relief of US$976 million to fight the COVID-19 pandemic. In addition, the annual and cumulative RCF access limits are higher for major natural disasters (with estimated damage of 20% of GDP or more) than for other loans.