The International Monetary Fund (IMF) is a major financial agency of the United Nations and an international financial institution funded in July 1944 by 191 member countries, with headquarters in Washington, D.C. It is regarded as the global lender of last resort to national governments and a leading supporter of exchange-rate stability.
“It does so by supporting economic policies that promote financial stability and monetary cooperation, which are essential to increase productivity, job creation and economic well-being. The IMF is governed by and accountable to its member countries,” it states in its mission.
The IMF has three critical missions: furthering international monetary cooperation, encouraging the expansion of trade and economic growth and discouraging policies that would harm prosperity. To fulfill these missions, IMF member countries work collaboratively with each other and with other international bodies.
But what about its own finances? How does it finance its critical functions and cover its operational expenses?
Generating and deploying resources
In a recent blog post, the IMF said it is not only a global financial firefighter; It also provides policy advice and technical support to help members create the right economic conditions and institutions for maintaining economic and financial stability, boosting growth, jobs and living standards. Fulfilling this mandate is made possible by a unique mechanism for generating and deploying resources, with a lending capacity of nearly $1 trillion.
It explains that the IMF is similar to a credit union. Not only do members put in money to earn interest on their deposits, but they can also tap this pool of resources by taking out a loan. The fund’s 191 member countries are assigned individual “quotas” based broadly on their relative positions in the world economy. These quotas are the primary building blocks of the fund’s financial structure. They determine the maximum financial contribution of each member, and they also help define how much a country can borrow from the fund.
In exchange for providing resources for IMF lending, member countries receive an interest-bearing, liquid and secure claim on the IMF. Importantly, that claim counts as part of members’ foreign exchange reserves. This also means that, unlike many other international organizations, the IMF does not rely on annual fees or grants from budget appropriations by its members.
Fund’s impact on the global economy
The impact of the IMF’s funding model on the global economy is significant. By pooling member resources, the IMF plays a central role in the global financial safety net. It supports countries that are struggling to meet their international financial obligations, such as paying for imports or servicing their external debt. Faced with such a balance of payments crisis, countries can seek swift help from the IMF.
“To be clear, the fund does not provide development aid or project financing, such as loans to build infrastructure and so on; other institutions do that. As a lender of last resort, the fund provides temporary liquidity support to countries under stress. But the benefits of this assistance are no less tangible,” the IMF said.
These loans help soften the impact of a crisis on ordinary people. In addition, they restore confidence and provide vital “breathing space” to pursue economic reforms that can help countries get back on their feet.
How do creditor countries benefit from the IMF?
When members borrow from the IMF, creditor countries receive fair compensation on resources made available for fund lending—that is, the market-based interest you would expect to receive on a loan that, for all practical purposes, is risk-free.
The list of creditors includes IMF members whose economic positions, especially in their external accounts, are strong enough to support others. In 2024, around 50 creditor countries received a total of about $5 billion in interest on the resources they had provided for non-concessional IMF lending.
Members also benefit from the power of pooled resources. For instance, for every dollar the United States, the largest IMF shareholder, makes available for lending, the IMF leverages four dollars from other countries. All in all, the Fund’s total lending capacity is close to $1 trillion. Its loans can also serve as a catalyst for vital financing from other international financial institutions and, crucially, from the private sector.
Macroeconomic lifeline for borrowing countries
For borrowing countries, the “credit-union membership” provides a macroeconomic lifeline. Loan amounts represent a multiple of their individual quotas. To address the underlying economic challenges, loans come with an IMF program design and conditionality.
“The benefits of such terms and conditions are reflected in reasonable interest rates on the borrowings from the IMF. These rates are far lower than what crisis-hit countries would face in private capital markets,” the blog added.
Borrowing countries that access the IMF’s general, or non-concessional, lending also pay an interest rate that equals the rate paid to creditor members, plus a small margin. In addition, the Fund administers trusts which provide even cheaper, concessional financing to its poorest members.
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Lending and investments to cover administrative expenses
“The IMF’s unique financial structure lies at the heart of its lending function. But this is not its only unique feature. With its near-universal membership, the IMF is the only global institution empowered by its members to carry out regular “health checks” of their economies, the so-called IMF Article IV consultations,” the IMF added.
In addition, the fund provides research and policy advice, from dealing with debt to fighting money laundering and designing productivity-boosting reforms. It also works with members to build economic institutions, such as tax administration systems and monetary frameworks that support sound policy making and provide accountability of public functions.
To deliver on its mandate, the IMF incurs administrative expenses. However, the fund does not rely on annual budget appropriations or any other support from taxpayers to meet these expenses, it explained. Instead, they are fully covered by income from lending and investments. These income streams and prudent expense management within a flat budget framework allow the fund to further build reserves.
“The IMF’s administrative budget today, adjusted for inflation, is about the same size as it was 20 years ago. All these elements of the IMF’s financial structure are critical. They are in many ways unique, but the basic principles are simple—and were enshrined at the institution’s birth,” the fund concluded.
