IMF Support System

IMF Support System

Subject :Economy

Section: External sector

Context

Sri Lanka will need about $3 billion in external assistance within the next six months to help restore supplies of essential items, including fuel and medicines, to manage a severe economic crisis.

Concept:

The IMF assists countries hit by crises by providing them financial support to create breathing room as they implement adjustment policies to restore economic stability and growth. It also provides precautionary financing to help prevent and insure against crises.

The IMF provides financial support for balance of payments needs upon request by its member countries. Unlike development banks, the IMF does not lend for specific projects.

Typically, a country’s government and the IMF must agree on a program of economic policies before the IMF provides lending to the country. A country’s commitments to undertake certain policy actions, known as policy conditionality, are in most cases an integral part of IMF lending

However, for some arrangements, countries can use IMF resources with no or limited conditionality if they have already established their commitment to sound policies or where they are designed for urgent and immediate needs.

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.

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.

The Policy Support Instrument (PSI) and the Policy Coordination Instrument (PCI) do not provide financial support, but the PSI is a PRGT instrument while the PCI applies to both PRGT and GRA.