THE International Monetary Fund (IMF), on Tuesday, approved a new round of Bilateral Borrowing Agreements (BBAs) to help maintain its lending capacity of US$1 trillion as member countries around the world wrestle with the COVID-19 pandemic.

The decision was made by the IMF’s Executive Board and the new round of BBAs will have an initial term of three years through end-2023, which is extendable by one more year through end-2024. “These new agreements will help maintain the IMF’s lending capacity of US$1 trillion for the next few years, ensuring its ability to respond to members’ needs. The BBAs are the IMF’s third line of defence after quotas and the New Arrangements to Borrow (NAB),” a release from the entity stated.

Just last week, IMF Managing Director, Kristalina Georgieva, had announced that the pandemic could plunge the economies around the world in a worse situation than the 2008 Global Financial Crisis. To help replenish the needs of the poorest countries, Georgieva said that the IMF stands ready to deploy all its US$1 trillion lending capacity and would step up emergency finance as nearly 80 countries have requested help.

Intending not to deplete its lending capacity which would affect the IMF’s future resources, the Executive Board made the aforementioned decision to approve the new round which is expected to take effect on January 1, 2021. The IMF uses BBAs to meet the potential financing needs of all IMF members in the case that risks to the global economy materialize.

In such cases, loans will be drawn only if they are needed as a third line of defence after resources from quotas and the NAB are substantially used. “These are critical steps to ensure that the IMF can support its membership through the global pandemic now unfolding and beyond,” the release stated.

In a separate statement on Tuesday, following a Conference Call of G20 Finance Ministers and Central Bank Governors, Georgieva referred to the decision as “good news”. “The U.S. recently approved the doubling of the New Arrangements to Borrow, and our Executive Board yesterday agreed on a new round of bilateral borrowing to secure the IMF’s $1 trillion lending capacity.

She assured member countries that the IMF is doing its part to ensure reforms and to strengthen its crisis response. The IMF has recently enhanced access to its emergency facilities, as now some 85 countries indicate they rely on them for financial support; improved its capacity to serve the world’s poorest members; and is assisting countries experiencing foreign exchange shortages, including possibly by short-term liquidity line.

“Our forecast of a recovery next year hinges on how we manage to contain the virus and reduce the level of uncertainty,” she stressed. “Thus, we support an ambitious G20 action plan to strengthen the capacity of health systems to cope with the epidemic; to stabilize the world economy through timely, targeted and coordinated measures; and to pave the way towards recovery.”

The IMF Managing Director also reported that the Executive Board has approved a reform of the Catastrophe Containment and Relief Trust (CCRT) that allows poorest member countries to invest in crisis response rather than repay the Fund.