WASHINGTON (Pakistan Point News / Sputnik - 22nd April, 2020) The International Monetary Fund (IMF) has created a "Short-Term Liquidity Line" to help nations with strong economic fundamentals seek emergency funding amid the novel coronavirus (COVID-19) pandemic, senior IMF official Geoff Okamoto said on Wednesday.
"The Short-Term Liquidity Line (SLL) [is] the first addition to the IMF's financing toolkit in almost ten years [that] provides a reliable and renewable credit line, without ex-post conditionality, to members with very strong fundamentals and policy frameworks," Okamoto said in a blog. "The SLL can also help reduce future financing needs by helping countries arrest moderate-sized liquidity problems before they can evolve into bigger problems."
Describing the facility in the same vein as an IMF program called the Flexible Credit Line, Okamoto said he expected total immediate demand for the SLL to be as much as $50 billion, an amount he noted was a modest portion of the IMF's $1-trillion war chest to fight the COVID-19 pandemic.
Okamoto said the SLL is expected to help countries given that the COVID-19 pandemic has created unprecedented portfolio outflows from emerging markets estimated at a record $100 billion.
"Markets [are] effectively frozen in some cases. This has created sizable demand for US Dollar liquidity, with emerging markets facing sharp liquidity shortages," Okamoto said.
The SLL has some innovative features like revolving access that allowed repeated drawdown and repayment during a 12-month duration, Okamoto said, adding that it "does not operate like a traditional loan, but can be likened, in some respects, to a credit card, where money can be drawn and replenished up to a limit."
Okamoto noted that successor arrangements were also possible so long as the member states continued to qualify and had "special balance-of-payment" needs.
Giving an example of how the facility would work, Okamoto said a qualifying member who has $20 billion in public debt will be able to lower borrowing costs by 1 basis point.
"Their savings would be $2 million, and that's $2 million that could be better deployed in the present crisis toward critical healthcare and social safety net needs instead of debt servicing," he said.
The IMF had previously said it was leveraging its $1 trillion lending capacity to provide some $100 billion as a short-term liquidity facility to more than 100 countries requiring funding.
