IMF approves $15.6billion loan to Ukraine

Subject: International Relations

Section: International Organisation

Context:

The International Monetary Fund (IMF) has approved a $15.6bn support package for Ukraine to assist with the conflict-hit country’s economic recovery, the fund has said.
The Russian invasion has devastated Ukraine’s economy, causing activity to contract by around 30 percent last year, destroying much of its capital stock and fuelling poverty, according to the IMF.
The 48-month Extended Fund Facility (EFF) programme approved by the fund’s board is worth roughly $15.6bn.
It forms the IMF’s portion of a $115bn overall support package comprised of debt relief, grants and loans by multilateral and bilateral institutions, the organisation confirmed in a press conference Friday.
The IMF recently changed its rules to allow loan programmes for countries facing “exceptionally high uncertainty”.

About EFF:

It is a fund created by IMF for helping economies to address serious medium-term balance of payments problems because of structural weaknesses that require time to address.
Assistance under an extended arrangement features longer program engagement to help countries implement medium-term structural reforms with a longer repayment period.
It provides for support for comprehensive programs including the policies needed to correct structural imbalances over an extended period.
Typically approved for periods of three years, but may be approved for periods as long as 4 years (repaid over 4.5–10 years in 12 equal semiannual installments unlike Stand-By Agreement facility which provides support for short period with repayment period of 3.5–5 years.)

Conditions to get help

When a country borrows from the IMF, it commits to undertake policies to overcome economic and structural problems
The IMF’s Executive Board regularly assesses program performance and can adjust the program to adapt to economic developments.
Lending is tied to the IMF’s market-related interest rate, known as the basic rate of charge, which is linked to the Fund’s Special Drawing Rights (SDR) interest rate.
EFF is guided by a country’s financing needs, capacity to repay, and track record with past use of IMF resources:
Normal access: Borrowing under an EFF is subject to the normal limit of 145 percent annually of a country’s IMF quota, (IMF quota broadly reflects a country’s position in the global economy), and a cumulative limit over the life of the program of 435 percent of its quota, net of scheduled repayments.
Exceptional access: The Fund may lend amounts exceeding these limits in exceptional circumstances provided that a country satisfies a predetermined set of criteria.