Ensure Pakistan does not divert loans to foot defence bills: India to IMF
- March 7, 2024
- Posted by: OptimizeIAS Team
- Category: DPN Topics
Ensure Pakistan does not divert loans to foot defence bills: India to IMF
Subject: IR
Section: Int organisation
Context: India stresses the need for stringent monitoring during a recent review of the IMF’s ₹3 billion loan to Pakistan; new PM Shehbaz Sharif seeking additional funding support from the IMF.
The Stand-by Arrangement (SBA) provides short-term financial assistance to countries facing balance of payments problems. Historically, it has been the IMF lending instrument most used by advanced and emerging market countries. Through the years, the SBA has been upgraded to be more flexible and responsive to countries’ needs.
Concept –
- The International Monetary Fund, or IMF, promotes international financial stability and monetary cooperation.
- It also facilitates international trade, promotes employment and sustainable economic growth, and helps to reduce global poverty.
- The IMF is governed by and accountable to its 190 member countries.
Primary aims:
- Promote international monetary cooperation;
- Facilitate the expansion and balanced growth of international trade;
- Promote exchange stability;
- Assist in the establishment of a multilateral system of payments; and
- Make resources available (with adequate safeguards) to members experiencing balance-of-payments difficulties.
- Financial assistance: Providing loans to member countries that are experiencing actual or potential balance-of-payments problems is a core responsibility of the IMF.
- Surveillance: In order to maintain stability and prevent crises in the international monetary system, the IMF monitors member country policies as well as national, regional, and global economic and financial developments through a formal system known as surveillance.
- SDRs: The IMF issues an international reserve asset known as Special Drawing Rights, or SDRs, that can supplement the official reserves of member countries participating in the SDR Department (currently all members of the IMF).
- Resources: Member quotas are the primary source of IMF financial resources. A member’s quota broadly reflects its size and position in the world economy. The IMF regularly conducts general reviews of quotas.
- IMF Members: Any other state, whether or not a member of the UN, may become a member of the IMF in accordance with IMF Articles of Agreement and terms prescribed by the Board of Governors.
- Membership in the IMF is a prerequisite to membership in the IBRD.
Governance and organization:
- The IMF is accountable to its member country governments.
- At the top of its organizational structure is the Board of Governors, consisting of one governor and one alternate governor from each member country, usually the top officials from the central bank or finance ministry.
- The Board of Governors meets once a year at the IMF–World Bank Annual Meetings.
- Twenty-four of the governors serve on the International Monetary and Financial Committee, or IMFC, which advises the IMF’s Executive Board on the supervision and management of the international monetary and financial system.
- The day-to-day work of the IMF is overseen by its 24-member Executive Board, which represents the entire membership and supported by IMF staff.
- The Managing Director is the head of the IMF staff and Chair of the Executive Board and is assisted by four Deputy Managing Directors.
- First Deputy Managing Director is the second top post in IMF next to the Managing Director.
- The First Deputy Managing Director in the IMF takes lead on conducting surveillance, flagship publications and oversee researches
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 membership
- General Resources Account-All IMF members are eligible to access the Fund’s resources in the General Resources Account (GRA) on non-concessional terms.
Funds for PRGT lending are obtained through bilateral loan agreements at market interest rates. Subsidy resources make up the difference between the market rates received by lenders and the concessional rates paid by LIC borrowers.
- Poverty Reduction and Growth Trust-concessional financial support (currently at zero interest rates) available through the Poverty Reduction and Growth Trust
- Stand-By Arrangements (SBAs)- in case of emerging and advanced market economies in crises, the bulk of IMF assistance has been provided through Stand-By Arrangements to address short-term or potential balance of payments problems.
- Standby Credit Facility (SCF) -Financing for LICs with actual or potential short-term balance of payments and adjustment needs caused by domestic or external shocks, or policy slippages—can also be used on a precautionary basis during times of increased risk and uncertainty.
- The Extended Fund Facility (EFF) -Fund’s main tool for medium-term support to emerging and advanced countries facing protracted balance of payments problems
- 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
- Flexible Credit Line (FCL) or the Precautionary and Liquidity Line (PLL)-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) –for emerging and advanced countries provide rapid assistance to countries with urgent balance of payments needs, including from commodity price shocks, natural disasters, and domestic fragilities.
- Rapid Credit Facility (RCF)-Rapid financial support as a single up-front payout for low-income countries facing urgent balance of payments needs—possible repeated disbursements over a (limited) period in case of recurring or ongoing balance of payments needs.
- Catastrophe Containment and Relief Trust-In February 2015, the IMF repurposed the Post-Catastrophe Debt Relief Trust, into the Catastrophe Containment and Relief Trust. Under the new trust the IMF can join international debt relief efforts for poor countries hit by the most catastrophic of natural disasters. It can also assist countries battling public health disasters—such as infectious disease epidemics—with grants for debt service relief.