The International Monetary Fund (IMF) on September 1 announced a staff-level agreement with Sri Lanka

The International Monetary Fund (IMF) on September 1 announced a staff-level agreement with Sri Lanka

Subject :IR

Section: International organization

It is a formal arrangement by which IMF staff and Sri Lankan authorities agree on a $2.9-billion package that will support Sri Lanka’s economic policies with a 48-month arrangement under the Extended Fund Facility (EFF)

Conditionalities:

IMF has agreed to support Sri Lanka, the EFF is conditional on many factors.

• Sri Lanka must take a series of immediate measures that the Fund has deemed necessary to fix fiscal lapses and structural weaknesses — such as raising fiscal revenue, safeguarding financial stability and reducing corruption vulnerabilities.
• Sri Lanka must also restructure its debt with its multiple lenders.
• The country’s official creditors must give financing assurances on debt sustainability, and when the government reaches a collaborative agreement with its private creditors.

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 semi annual 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.