Poverty Reduction and Growth Facility

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The Poverty Reduction and Growth Facility (PRGF) is an arm of the International Monetary Fund which lends to the world's poorest countries. It was created in September 1999, replacing the Enhanced Structural Adjustment Facility.

PRGF supported programs are underpinned by comprehensive country owned poverty reduction strategies. Poverty Reduction Strategy Papers (PRSPs) are looked up by governments with the active participation of civil society and other development partners. PRSPs are then considered by the Executive Boards of the IMF and World Bank as the basis for concessional lending from each institution and debt relief under the joint Heavily Indebted Poor Countries (HIPC) Initiative. The targets and policy conditions in a PRGF-supported program are drawn from the country's PRSP. A review of PRGF program design by the Executive Board in September 2005 found that while macroeconomic outcomes in low-income countries had improved markedly in recent years, per capita income remains low. The review noted in particular, the importance of broad economic institutions for sustained growth and stability, and the need to manage carefully increased aid flows.

As of August 2007, 78 low-income countries are eligible for PRGF assistance. Eligibility is based principally on the IMF's assessment of a country's per capita income, drawing on the cutoff point for eligibility to World Bank concessional lending (currently, 2005 per capita gross national income of $1,025). Loans carry an annual interest rate of 0.5 percent, with repayments made semiannually, beginning 5½ years and ending 10 years after the disbursement. A country may normally borrow up to a maximum of 140 percent of its IMF quota under a three-year arrangement, although this may be increased to 185 percent of quota in exceptional circumstances. In each case, the amount will depend on the country's balance of payments need, the strength of its adjustment program, and its previous and outstanding use of IMF credit. The expected average access under the initial three-year arrangement is 90 percent of quota, and 65, 55, 45, 35, and 25 percent of quota for second through sixth-time users of the facility, respectively. "Low-access" PRGF arrangements with a standard level of 10 percent of quota may be used for members with little or no immediate balance of payments need. PRGF-eligible members with per-capita income above 75 percent of the cutoff for World Bank concessional lending, or members borrowing on commercial terms, may combine PRGF arrangements with lending from the IMF's non-concessional Extended Fund Facility.

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