In News: Sri Lanka has reached a preliminary agreement with the International Monetary Fund (IMF) for a loan of about $2.9 billion.
How IMF lending helps?
- IMF lending aims to give countries breathing room to implement adjustment policies in an orderly manner, which will restore conditions for a stable economy and sustainable growth.
- IMF financing facilitates a more gradual and carefully considered adjustment.
- As IMF lending is usually accompanied by a set of corrective policy actions, it also provides a seal of approval that appropriate policies are taking place.
- The IMF’s various lending instruments are tailored to different types of balance of payments need as well as the specific circumstances of its diverse.
- All IMF members are eligible to access the Fund’s resources in the General Resources Account (GRA) on non-concessional terms.
- The IMF also provides concessional financial support (currently at zero interest rates through June 2021) through the Poverty Reduction and Growth Trust which is better tailored to the diversity and needs of low-income countries.
- Historically, for emerging and advanced market economies in crises, the bulk of IMF assistance has been provided through Stand-By Arrangements (SBAs) to address short-term or potential balance of payments problems.
- The Standby Credit Facility (SCF) serves a similar purpose for low-income countries.
- The Extended Fund Facility (EFF) and the corresponding Extended Credit Facility (ECF) for low-income countries are the Fund’s main tools for medium-term support to countries facing protracted balance of payments problems.
- To help prevent or mitigate crises and boost market confidence during periods of heightened risks, members with already strong policies can use the Flexible Credit Line (FCL) or the Precautionary and Liquidity Line (PLL).
- The Rapid Financing Instrument (RFI) and the corresponding Rapid Credit Facility (RCF) for low-income countries provide rapid assistance to countries with urgent balance of payments need, including from commodity price shocks, natural disasters, and domestic fragilities.
Reflecting different country circumstances, GRA-supported programs are expected to resolve the member’s BoP problems during the program period, while PRGT programs envisage a longer duration for addressing BoP problems.
Must Read: Sri Lanka’s Crisis
Source: Indian Express
Previous Year Question
Q.1)”Rapid Financing Instrument” and “Rapid Credit Facility” are related to the provisions of lending by which one of the following?
- Asian Development Bank
- International Monetary Fund
- United Nations Environment Programme Finance Initiative
- World Bank