New Canadian Lending Agreements With the International Monetary Fund

2016 Bilateral Credit Line

The International Monetary Fund (IMF) works to promote economic growth and safeguard the stability of the international monetary system by supporting its membership through economic surveillance and advice, technical assistance, capacity building, and adjustment lending programs.

The IMF’s total financial resources are composed of both permanent and temporary resources. The largest portion is comprised of the IMF’s permanent resources, or quotas, which form the basis of the institution’s resources and in normal times serve as its primary source of funds for lending. In addition to quotas, the IMF has access to temporary resources in the form of multilateral borrowing agreements (the New Arrangements to Borrow (NAB) and the General Arrangements to Borrow) and bilateral borrowing agreements, which serve as second and third lines of defence, respectively, in the event of major global shocks.

In 2012, 35 countries extended approximately C$520 billion[1] in temporary bilateral credit lines to backstop the IMF and ensure it remained well equipped to safeguard global economic stability at the height of the European sovereign debt crisis. While Canada had established a bilateral credit line along with other countries during the global financial crisis in 2009—as part of the previous round of bilateral borrowing—it did not participate in the 2012 borrowing agreements.

With the 2012 credit lines set to begin expiring this year, it is important that the IMF remains adequately resourced and able to respond quickly to any widespread global economic shock. In the current economic context—where the global economy continues to face elevated downside risks which, if realized and not effectively contained, could have serious global consequences—this requires a multilateral effort to temporarily maintain the IMF’s current lending capacity.

Alongside a number of G7, G20 and other partner countries, Canada is participating in the global undertaking to extend the IMF’s access to bilateral resources under the 2016 bilateral borrowing agreements. As part of this international effort, Canada will extend an SDR 8.2 billion (approximately C$15 billion[2]) time-bound precautionary credit line to the IMF for up to four years.

Canada’s participation in the 2016 borrowing agreements carries no upfront direct budgetary cost to the Government. These arrangements will serve as the IMF’s third line of defence. As such, they would only be drawn upon if there was an extreme global economic shock, and they cannot be activated until the IMF’s available quota and NAB resources have been effectively depleted. Any funds actually provided to the IMF are classified as part of Canada’s official international reserves, with interest paid on monies lent, and benefit from the IMF’s preferred creditor status and other various safeguards. 

The Poverty Reduction and Growth Trust

The Poverty Reduction and Growth Trust (PRGT) is the instrument the IMF uses to provide concessional lending (i.e. lending at below market rates of interest and for longer maturities than the IMF’s regular lending) to the Fund’s poorest and most vulnerable members. Canada has long supported the PRGT as a vital part of the financial safety net for these countries.

The PRGT has a strong track record of helping eligible countries overcome their balance of payment challenges through three facilities: the Extended Credit Facility, which provides flexible medium-term support; the Standby Credit Facility, which addresses short-term and precautionary needs; and the Rapid Credit Facility, which provides emergency support.

The PRGT is financed in two ways. First, certain IMF members provide loan resources to the PRGT at market interest rates. The PRGT uses these funds to lend to eligible members. Second, the PRGT also receives grants from donor countries, which it uses to subsidize the interest rate charged to eligible IMF members on these loans.

The IMF is seeking SDR 11 billion in loans from its membership to help support PRGT lending in the face of elevated economic and financial risks. If this target is achieved, it is anticipated that the PRGT will be sufficiently equipped to assist the poorest and most vulnerable among the IMF’s membership until the middle part of the next decade. Canada is committed to joining with other international partners to help ensure that these countries receive the concessional support they need from the IMF as they adjust to economic shocks and take steps to put themselves on a path to stronger, more inclusive growth and development.

As such, Canada is providing a further SDR 500 million (approximately C$900 million) in loans to support the PRGT. This is in line with past Canadian contributions to this facility. Most recently, as part of the last fundraising exercise in 2009, Canada pledged up to SDR 500 million in loans and C$40 million in subsidy resources to the PRGT.

PRGT loans are classified as loans receivable (a non-budgetary item) that generate a market-based financial return for Canada. They are backed by the security provided by the PRGT’s ample reserve buffer, a flawless repayment history and the IMF’s preferred creditor status.


1 As of September 15, 2016 the 35 effective 2012 borrowing agreements were equivalent to SDR 283 billion.
2 Amounts in Canadian dollars calculated based on an exchange rate of 1.836140 C$ per SDR (October 3, 2016).