Sri Lanka is counting on the IMF to bail its economy out of crisis, with an Extended Fund Facility
Sri Lanka is counting on the IMF to bail its economy out of crisis, with an Extended Fund Facility
Subject :International relations
Section: International Body
Context: Sri Lanka is counting on the IMF to bail its economy out of crisis, with an Extended Fund Facility
Extended Fund Facility (EFF)
When a country faces serious medium-term balance of payments problems because of structural weaknesses that require time to address, the IMF can assist through an Extended Fund Facility (EFF). Compared to assistance provided under the Stand-by Arrangement, assistance under an extended arrangement features longer program engagement—to help countries implement medium-term structural reforms—and a longer repayment period.
What is the EFF designed for?
The EFF was established to provide assistance to countries experiencing serious payment imbalances because of structural impediments or slow growth and an inherently weak balance-of-payments position. An EFF provides support for comprehensive programs including the policies needed to correct structural imbalances over an extended period.
Longer engagement and repayment periods
As structural reforms to correct deep-rooted weaknesses often take time to implement and bear fruit, EFF engagement and repayment cover longer periods than most Fund arrangements.
Extended arrangements are typically approved for periods of three years, but may be approved for periods as long as 4 years to implement deep and sustained structural reforms. Amounts drawn under an EFF are to be repaid over 4½–10 years in 12 equal semi-annual instalments. By contrast, credits under a Stand-By Arrangement (SBA) are repaid over 3¼–5 years.
Other support system of IMF
- 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.