IMF approves $15.6billion loan to Ukraine
- April 2, 2023
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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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.