Sierra Leone Telegraph: 6 February 2015
The IMF says that it will provide grants totalling $100 million to be used as debt relief to the three countries worst hit by the Ebola epidemic. Guinea, Liberia, and Sierra Leone will use the funds to cover the cost of servicing their debts.
These grants come in addition to $130 million in emergency assistance the IMF disbursed in September under an existing loan program, as well as about $160 million in additional loans to the three countries proposed for IMF Executive Board approval later this month.
The money for the grants comes from a newly created Catastrophe Containment and Relief Trust (CCR), replacing the trust fund that was established to help Haiti recover from the devastating earthquake in 2010.
The new trust will be a permanent feature and in the future will make available grants to provide debt relief to eligible low-income countries recovering from a catastrophic natural disaster.
It will also help countries seeking to contain the potentially catastrophic spread of a life-threatening epidemic within and across international borders.
The debt relief initiative and additional lending to the Ebola-hit countries were outlined by IMF Managing Director Christine Lagarde to the G-20 heads of state in Brisbane, Australia.
This is the first time that the Fund has provided grants to support a country in containing an evolving natural disaster with international spill over effects.
Speaking to IMF Survey shortly after the Executive Board’s decision to create the new trust, Sean Nolan – Deputy Director of the IMF’s Strategy, Policy and Review Department, said the trust would help poor countries deal with a broader scope of natural disasters.
This is an excerpt of an interview with Sean Nolan conducted by IMF Survey.
IMF Survey: How does the new Catastrophe Containment and Relief Trust work and what does it mean to those countries that are currently struggling with Ebola?
Nolan: The Fund has been providing significant financial support to the three countries through pre-existing loan arrangements with each country; it then augmented these planned disbursements with an additional $130 million in new loans in September.
We expect another disbursement of about $160 million in such loan assistance later this month. This has been the immediate response of the Fund, to get money into the government’s account where it can be used immediately for financing salaries of health workers, security forces, and so forth.
What we have done in creating this new trust is to expand the old trust so that it can handle a different kind of disaster, a disaster where the issue is containing and preventing catastrophe rather than responding in the wake of a major catastrophe.
The new trust has these two windows, one for dealing with earthquake-style events as before, and then a new window for providing grants to countries to help them in dealing with a public health crisis.
IMF Survey: The grants provided under this trust will go towards covering the cost of debt servicing—how does that translate into dollar amounts?
Nolan: We would expect that the window will be in a position to finance grants to the three countries on the order of a collective amount of about $100 million.
The objective is to lower the burden of debt that’s been created for the country as it seeks to battle with the epidemic. We are lending money through our regular loan programs, or facilities—our Rapid Credit Facility in particular—but that’s money that has to be repaid.
The purpose of the grants provided via this new trust is to limit that debt burden, freeing up resources for development purposes in the future rather than having to assign those resources to debt service. This will be a separate $100 million that will be used to reduce the debt burden associated with all this borrowing.
IMF Survey: How is this CCR proposal related to the G-20 call in November for the IMF to provide more resources to countries that are struggling with Ebola?
Nolan: The G-20 call had two parts to it actually. One was to provide additional resources to the three countries directly affected, and the second was to look forward to how to handle situations like this in the future because, as many people have underscored, in our globalized world the risk of epidemics that are highly localized going viral is significant; this is something that we can’t assume happens every 100 years and that the international community needs to be prepared for.
This CCR proposal is one element of the Fund’s response. The bigger element of course is providing an infusion of money immediately—the $160 million extra that I’ve described that we propose to disburse in the coming month.
The grants are a second part of that initiative and they make that package of loans much, much cheaper. When I say much, much cheaper, IMF lending to low-income countries is at a zero interest rate, so what I mean by much cheaper is that the amount of the loan that needs to be repaid is in effect significantly reduced.
IMF Survey: How long does it take to disburse additional loans, or grants in this case, and will this trust provide the means to get the money out any faster?
Nolan: The special advantage that the IMF has over other international agencies in responding to disasters is the ability to provide loan financing very quickly. Our procedures take time, but in an emergency everything can be accelerated and money is quickly transferred to the country.
Other agencies will be delivering assistance via projects; they’ll be building hospitals, delivering medical supplies and personnel. That’s not in our area of expertise; our area of expertise is getting funds out quickly.
The grant assistance as I said is to strengthen the country’s medium-term position, to ensure it’s not overburdened with debts created by fighting the pandemic. And a really important part of the motivation for these grants is that these countries are on the front line fighting an epidemic, partly on their own behalf but also, indirectly, on behalf of the international community, because we all are threatened by Ebola. And that’s why I think there’s such a strong emphasis here on providing especially generous assistance.
IMF Survey: So how will this new trust be funded?
Nolan: It will be funded from two core sources. One is an existing trust fund, the Post Catastrophe Debt Relief, in which there are some monies left over after providing support to Haiti.
There are also two accounts that are linked to the Multilateral Debt Relief Initiative—the provision of debt relief to countries alongside the Heavily Indebted Poor Countries Initiative process—which is now largely complete.
We are planning to consolidate these funds into a single trust fund: together, this will certainly more than allow us to meet the needs of financing our proposed assistance to Guinea, Liberia, and Sierra Leone. But to set this trust up in a manner that allows it to operate over the medium term, addressing future disasters, we need more money.
We estimate we will need about $140 million. We’ll be asking our membership to allocate funds to the trust fund, to build up the balance to the kind of level we think is needed.