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Photo: Bloomberg
Photo: Bloomberg

IMF likely to offer $4 bn loan to aid India’s covid response

  • IMF board meets this week to consider a proposal of doubling emergency financing capacity
  • The IMF has received over 90 emergency financing requests or expressions of interest as of 9 April

NEW DELHI : India could be offered $4 billion or more by the International Monetary Fund (IMF) to combat the covid-19 pandemic and partly cushion the impact on the country’s economic growth, two people familiar with the development said. The board of the multilateral funding agency last week approved doubling of its emergency financing capacity to $100 billion, and a part of that could come India’s way.

“Although $4 billion will be emergency financing requirement that IMF will offer India, it is different from India’s quota of $13 billion in special drawing rights (SDR) at IMF," said the first person cited above on condition of anonymity. SDRs are usually offered in times of balance of payment problems.

The IMF board, comprising 24 executive directors (ED), will gather for its annual spring meet Tuesday wonwards. One ED can represent more than one country. World Bank officials will also be present at the meet, but the resolution for funding will be voted upon only by the EDs.

The IMF said on its website that it has received over 90 emergency financing requests or expressions of interest as of 9 April. Roughly 60% of them are from low-income countries and the rest from emerging markets, it said. It could not be confirmed if India also made a request. A request is not mandatory for IMF to offer funding to a country, the person said.

“It will most likely be a loan and not a grant as India has the capacity to repay," said the second person cited above, who also declined to be named. Grants are usually given to very poor countries or those facing grave economic hardship and lack the ability to repay.

More broadly, IMF member countries can also draw on the Fund’s overall firepower of $1 trillion by requesting new financing arrangement or augmenting existing lending arrangements, Ting Yan, press officer at IMF’s Washington headquarters, said in an email response to a Mint query.

So far, only one-fifth of the Fund’s capacity has been committed.

The IMF now has $100 billion available through its emergency financing facilities—the Rapid Credit Facility and Rapid Financing Instrument—that provide emergency assistance without the need to have a full-fledged programme in place. These loans can be disbursed very quickly to assist member countries implement policies to address emergencies such as the coronavirus, Ting Yan said. She did not specifically confirm the quantum of assistance IMF could offer India.

The Fund also has a Catastrophe Containment and Relief Trust (CCRT), which provides eligible countries with upfront grants for relief on IMF debt service. This facility was used to support Guinea, Liberia and Sierra Leone during the 2014 Ebola outbreak, Yan pointed out.

The World Bank and the Asian Development Bank have so far committed $1 billion and $2.2 billion respectively to lend to India to help it beef up its healthcare capacity. Both the agencies have committed to provide more if needed.

As covid-19 threatens to overwhelm economies worldwide, India, which was staring at a slowing economy even before the pandemic broke, finds its growth projections slump to decade lows.

The country’s economic growth is likely to range between 1.5% and 4% in FY21 depending on the severity of the spread of covid-19 and the duration of the ongoing nationwide lockdown announced by the government, the World Bank said on Sunday.

Goldman Sachs last week had projected the bleakest growth forecast for India for FY21 at 1.6%, holding that the spread of covid-19 may lead to a significant contraction in economic activities.

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