IMF eyes expanded access to emergency aid for food shocks

The International Monetary Fund is looking for ways to provide emergency funding to countries facing war-induced food price shocks and will discuss measures at a board meeting on Monday, sources familiar with the matter told Reuters.

It would allow the IMF to help Ukraine and other countries hard-hit by Russia’s war in Ukraine without imposing conditions required in a regular fund program, the sources said, asking not to be named as the case is still under treatment. The size and scope of the measures was not yet clear.

A formal vote on the measure – developed by IMF staff in recent months – is expected before the Fund’s annual meetings in October, the sources said.

If approved, it would temporarily increase existing access limits and allow all member states to borrow up to an additional 50% of their IMF quota under the IMF’s Rapid Financing Instrument and Rapid Credit Instrument serving low-income countries, the sources said.

“The concept is simple, but it could help many countries,” said one of the sources.

Food prices rose worldwide after the war started due to blocked supply routes, sanctions and other trade restrictions, although a UN-brokered agreement last month that allowed the resumption of grain exports from Ukrainian ports has begun to improve trade flows and prices have been lowering in recent weeks.

The Washington-based lender forecast in July that inflation will be 6.6% this year in advanced economies and 9.5% in emerging markets and emerging economies, posing a “clear risk” to current and future macroeconomic stability. .

Many African countries and other poor countries facing food shortages and acute hunger have pushed for more money, but it was not immediately clear how many countries would request the additional financial aid.

The IMF’s proposal would help Ukraine to some extent, but its officials say they need a “full-fledged” financing package as they work to keep the government afloat during Europe’s first major war since World War II.

An IMF spokesman last week told Reuters that the global lender “continues to work closely with Ukrainian authorities and is currently exploring all viable options to further support Ukraine in these challenging circumstances”.

Ukraine’s foreign creditors have backed a two-year payment freeze on nearly $20 billion in international bonds, but the country must make $635 million in principal payments on previous IMF loans as of mid-September.

The IMF approved $1.4 billion in emergency funding for Ukraine under the RFI instrument in March to help meet urgent spending needs and mitigate the effects of the war. The economy is expected to shrink by 35% this year.

Russia’s war against Ukraine has changed global trade patterns, production and consumption of commodities in such a way that prices will remain at historically high levels until the end of 2024, the World Bank reported in August.

Food is the largest category in inflation baskets – the selection of goods used to calculate the cost of living – in many developing countries, accounting for about half in countries like India or Pakistan and about 40% on average in low-income countries, Show IMF data.

Tags: Ukraine