Bank of Estonia : Eesti Pank is ready to lend to the IMF if needed

Eesti Pank and the International Monetary Fund (IMF) have signed a loan agreement under which Eesti Pank is ready to lend up to 380 million euros to the IMF if needed. The actual amount to be lent will become clear at the start of next year, and will probably be less than half of that.

The IMF would be able to use this credit line for three years starting from next year, once the current credit line agreements have ended. The length of the loan can be extended by one year. The IMF already has similar credit line agreements with a large number of IMF member states.

The IMF can use those loans if it needs to in order to prevent an economic crisis, or to give temporary support to countries that have hit economic difficulties. Strict conditions are applied to countries that receive such a loan, and they are required to improve their economic policies.

'It is in the interests of Estonia as a small country with an open economy that the IMF has sufficient financial capacity to hold off any possible crises and to support countries facing economic difficulties, if it needs to, and so stabilise the global economy. As a country that is dependent on exports, we could be directly affected by concerns in the global economy', said Deputy Governor Ülo Kaasik.

Bilateral credit line agreements with countries are the third line of defence for the IMF, which it can use to lend to countries in difficulty only if the resources in the first defence lines have been exhausted. So far it has never been necessary to use this loan facility.

The first source of funding, or defence line, is the quota paid in by member states of the IMF, which currently stands at a total of 595 billion euros. The second line of defence is the multilateral lending agreements, which currently total 456 billion euros. Bilateral credit lines between the IMF and its member states, which make up the third line of defence, are reckoned to total up to 400 billion euros. The exact size of the credit line being given to the IMF by Eesti Pank as part of the third line of defence will be fixed at the start of 2021 once the countries participating in multilateral loan agreements have completed the process of implementing the new agreements, but it will probably be 164 million euros. The bilateral loan agreement is the liquid foreign reserve of the central bank, and it can be recalled at short notice if needed.

The income for Eesti Pank from the loan to the IMF would depend on the difference between the interest rates on the basket of currencies that make up the special drawing rights (SDR) of the IMF, and the rates on the monetary policy loans of the European Central Bank.

For further information:
Viljar Rääsk
Head of Communications
Eesti Pank
6680 745, 5275 055
Email: viljar.raask[at] eestipank.ee
Press enquiries: press[at] eestipank.ee