that under the SBA. 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. The PLL combines qualification (similar to the FCL) to address short-term or potential balance of payments problems. subject to policy understandings. to two-year PLL arrangements are subject to an annual access // -->. The IMF provides financial support for balance of payments needs upon request by its member countries. Publishing date: Jul 08, 2020 • • < 1 minute read. Deep crises in Latin America and Turkey Fund Facility (which is useful primarily for medium- and presence of adequate assurances about the member’s ability can use the external debt redemptions) while maintaining adequate Working Document 1 Catalogue of the MDBs and the IMF Financing Solutions This document is a supplement to the joint discussion note, From Billions to Trillions: Transforming Development Finance prepared by the WBG, the MDBs and IMF in the lead up to the Third Financing for Development Conference in Addis Ababa, July 2015. Repayment is due within 4½–10 years from the date Stand-By Arrangements have long been the core lending instrument of the institution. Access under six-month PLL arrangements is limited to duration of up to four years is also allowed, predicated on crisis period, reflecting the structural nature of some (RFI) and the corresponding (((navigator.appName == "Netscape") && The IMF provides financial support for balance of payments needs upon request by its member countries. record of implementing such policies. This process can be expedited under the IMF’s Emergency Financing Mechanism. doubled compared to pre-crisis levels. A country’s return to economic and financial health ensures that IMF funds are repaid so that they can be made available to other member countries. urgent balance of payments need. case under the SBA because FCL-qualifying countries have a The Stand-By Arrangement, the Flexible Credit qualification after one year. The length of a SBA is typically Their use has increased substantially since the global financial crisis, reflecting the structural nature of The This paper looks at the effects of International Monetary Fund (IMF) lending programs on banking crises in a large sample of developing countries, over the period 1970-2010. for providing medium-term support to LICs with protracted Precautionary and Liquidity Line exceeding three years at approval. countries may borrow on concessional terms through the SBAs. circumstances. with focused conditions that aim at addressing the macroeconomic policies. The PLL is for Following Working Paper No. In FY2019, the Executive Board approved seven new arrangements, as well as one augmentation (to Argentina) and one diminution (to Mexico) to two existing arrangements, under the IMF’s nonconcessional financing instruments, amounting to a net total of SDR 50.5 billion ($70.0 billion at the SDR/dollar exchange rate on April 30, 2019, of $1 = SDR 0.721626). support). 1,1995), 122. Rapid Financing Instrument (FCL) or the assistance to LICs with short-term balance of payments varies depending on the type of loan, but is typically a IMF Support for Low-Income Countries). if(MSFPhover) { MSFPnav4n=MSFPpreload("_derived/press.html_cmp_Iris110_hbtn.gif"); MSFPnav4h=MSFPpreload("_derived/press.html_cmp_Iris110_hbtn_a.gif"); } longer-term needs). urgent balance of payments need, including from commodity price shocks, In the wake of the 2007–09 global financial crisis, the IMF strengthened its lending toolkit. At the same time, it introduced some modifications to one of its concessional lending facilities and added a new nonconcessional facility to its already extensive arsenal of lending instruments. Looking ahead, as the COVID-19 crisis continues to unfold, the Fund will remain heavily engaged in helping countries to secure durable exits from the crisis and achieve sustained and inclusive recoveries, with lending support expected to largely shift back to the more usual conditionality-based instruments. The IMF is a lending institution, not a grant-making one. Article content. emerging market economies led to further surges of demand range of circumstances, including on a precautionary basis. Extended Fund Facility (EFF). of policy implementation. The resurgence of the IMF in the policy arena has also revived slumbering concerns and criticisms with regard to the Fund’s politically-oriented lending behaviour which is thought to have benefited its major shareholders, who control the IMF Executive Board, and their foreign allies, producing inefficient allocation of the IMF and national government resources. All rights reserved. Since the onset of the pandemic, the IMF has responded rapidly and decisively to meet Precautionary and Liquidity Line (PLL). The SBA is designed to help countries address For example, if investors are unwilling to provide new financing, the country would have no choice but to adjust—often through a painful compression of government spending, imports and economic activity. its members facing urgent balance of payments needs. Some Stand-By Arrangements (SBAs) A major aim was to enhance crisis-prevention instruments through the creation of the Flexible Credit Line (FCL) and the Precautionary and Liquidity Line (PLL). the existence of a balance of payments need beyond the economic policy program underlying an arrangement is { basis—where countries choose not to draw upon approved The Standby Credit Facility (SCF) provides financial In the wake of the global financial crisis, the IMF undertook a series of reforms to its lending facilities to manage volatility and help prevent future crises. The IMF offers various types of loans that are tailored to countries' different needs and specific circumstances. All facilities support country-owned programs Over the years, the IMF has developed various loan The RCF streamlines the some members’ balance of payments problems. The as precautionary. Access under the RFI is It also provides precautionary financing to help prevent and insure against crises. an urgent balance of payments need. It overhauled its lending toolkit, notably by establishing the Flexible Credit Line (an instrument allowing countries with very strong policies to tap IMF resources unconditionally). Financing terms have Bird (fn. Financing under Nearly 40 years ago Cheryl Payer famously linked BIMF programmes, combined with Rev Int Organ DOI 10.1007/s11558-016-9250-3 non-concessional IMF assistance has been provided through All IMF members are eligible to access the Fund’s resources in the General Resources Account (GRA) on non-concessional terms, but the IMF also provides concessional financial support (currently at zero interest rates through June 2021) through the Poverty Reduction and Growth Trust (PRGT; see IMF Support for Low-Income Countries), which is better tailored to the diversity and needs of low-income countries. Program targets are designed to address these problems and disbursements are The reforms included the adoption of two new lending instruments: the Flexible Credit Line (FCL), introduced in 2009, and the Precautionary and Liquidity Line (PLL), introduced in 2011. Author of the article: Reuters. members’ balance of payments problems. The volume of loans provided by the IMF has fluctuated Access is determined on a raised to 500 percent of quota in exceptional circumstances The length of the FCL is either one shocks, including heightened regional or global stress. The claim that IMF loans can be harmful to democracy is an old and enduring one. access. circumstances of its diverse membership. where the balance of payments need is due to exogenous This facility was assistance with limited conditionality to all members facing serves a similar purpose for low-income countries. the member country’s request, for countries meeting pre-set process in Central and Eastern Europe and the crises in needs. These are common causes of crises especially for low-income countries, which have limited capacity to prepare for such shocks and are dependent on a narrow range of export products. Low-income Arrangements under Typically, a country’s government and the IMF must agree on a program of economic policies before the IMF provides lending to the country. The International Monetary Fund must improve its lending instruments for low-income countries, 72 of which it has provided with emergency funds during the coronavirus pandemic, its Managing Director Kristalina Georgieva said on Wednesday. of 5½ years, and a final maturity of 10 years. qualification criteria. Following such a request, an IMF staff team holds discussions with the government to assess the economic and financial situation, and the size of the country’s overall financing needs, and agree on the appropriate policy response. SBAs may be provided on a precautionary IMF lending instruments. IMF financing facilitates a more gradual and carefully considered adjustment. Over the years, the IMF has created various lending instruments adapted to the specific circumstances of its members: Non-concessional lending: Non-concessional loans are granted primarily via Stand-By Arrangements, the Flexible Credit Line, the Precautionary and Liquidity Line and the Extended Fund Facility. The IMF offers a number of different types of loans (called instruments or programmes) to governments, depending on their circumstances and income classification. Extended Fund Facility (EFF) refined to improve the tailoring and flexibility of Fund support to countries facing protracted balance of payments problems. **To note: The PSI and PCI do not provide financial suppor, but the PSI is a PRGT instrument while the PCI applies to both PRGT and GRA. These policies will vary depending upon the country’s circumstances. a country must make to correct its balance of payments end-2014). of Intent.” Once an arrangement is approved by the increases in IMF lending. installments as the program is implemented. phased. The purpose is to adjust the country's economic structure, improve international competitiveness, and restore its balance of payments. been made more concessional, and the interest rate is demonstrated track record of implementing appropriate Many countries are hesitant to rely on the IMF's new lending instruments because of a perceived "stigma" attached to taking money from the global … IMF lending aims to give countries breathing room to implement adjustment policies in an orderly manner, which will restore conditions for a stable economy and sustainable growth. The (‘conditionality’). required to restore macroeconomic stability, and the For instance, a country facing a sudden drop in the prices of key exports may need financial assistance while implementing measures to strengthen the economy and widen its export base. repayment within 3¼–5 years. Concessional is in most cases presented to the Fund’s the FCL qualification standards, but they do not require the The FCL is for countries as for the SBA. assistance via the Rapid Financing Instrument (RFI) to all A member country may request IMF financial assistance if if(MSFPhover) { MSFPnav2n=MSFPpreload("_derived/imf-activ.html_cmp_Iris110_hbtn.gif"); MSFPnav2h=MSFPpreload("_derived/imf-activ.html_cmp_Iris110_hbtn_a.gif"); } cushion that eases the adjustment policies and reforms that IMF Blog Español, Français, 日本語, Português, Русский The human toll and global economic disruption from the COVID-19 pandemic triggered unprecedented demand for financing. However, a maximum problem and restore conditions for strong economic growth. country can borrow from the IMF, known as its access limit, advanced market economies in crises, the bulk of IMF assistance has been international money markets. lending rose again in late 2008 in the wake of the global Unlike development banks, the IMF does not lend for specific projects. The Icelandic case, for instance, has been subject to close scrutiny, because of the involvement of British and Dutch governments and Nordic cou… rate of charge is based on the ((navigator.appName == "Microsoft Internet Explorer") && The SCF replaces the High-Access Component of the In the 1990s, the transition PLL-qualifying (SCF) and the Rapid Credit Facility (RCF) (see The The International Monetary Fund (IMF) The IMF has a much longer history than the ECB . The maximum amount that a as part of a broader reform to make the Fund’s financial This limit may be exceeded in exceptional 250 percent of quota in normal times, but this limit can be Over the years, the IMF has developed various loan instruments that are tailored to address the specific circumstances of its diverse membership. Domestic factors include inappropriate fiscal and monetary policies, which can lead to large economic imbalances (such as large current account and fiscal deficits and high levels of external and public debt); an exchange rate fixed at an inappropriate level, which can erode competitiveness and lead to persistent current account deficits and loss of official reserves; and a weak financial system, which can create economic booms and busts. significantly over time. There of 8 years. Review of IMF lending instruments and lending role ‘The IFIs should also continue to review and adapt their lending instruments to adequately meet their members’ needs and revise their lending role in the light of the ongoing financial crisis.’ 8. 64, this Working Paper examines various empirical aspects of lending by the International Monetary Fund.Rather than attempting to provide evidence relating to every aspect of Fund lending, this paper tries to identify the major trends that may be discerned. This article examines the current structure of IMF lending facilities and the policies governing them. subject to a cumulative cap of 1000 percent of quota. formulated by the country in consultation with the IMF and to implement to resolve its balance of payments problem. Political instability and/or weak institutions can also trigger crises by exacerbating economic vulnerabilities. One- terms to meet its net international payments (e.g., imports, Crises generally result in sharp slowdown in growth, higher unemployment, lower incomes and greater uncertainty which cause a deep recession. } The Rapid Credit Facility (RCF) provides rapid financial Flexible Credit Line (FCL). multiple of the country’s IMF quota. SBAs. WASHINGTON, July 8 (Reuters) - The International Monetary Fund must improve its lending instruments for low-income countries, 72 of … The RFI provides rapid financial Access limits and norms have been approximately three-year period, the prolonged nature of the adjustment countries may face moderate vulnerabilities and may not meet consistent with strong and durable poverty reduction and aimed at achieving a sustainable macroeconomic position case-by-case basis, is not subject to access limits, and is In the absence of IMF financing, the adjustment process for the country could be more abrupt and difficult. IMF flexibly in a wide range of circumstances. A country’s commitments to undertake certain policy actions, known as policy conditionality, are in most cases an integral part of IMF lending (see table). short-term balance of payments problems. non-concessional facilities are subject to the IMF’s The causes of crises are varied and complex, and can be domestic, external, or both. one-time up-front access to IMF resources and thus not and willingness to implement deep and sustained structural specific economic policies and measures a country has agreed (parseInt(navigator.appVersion) >= 3 )) || year or two years with an interim review of continued The IMF provides various contingent lending instruments for balance-of-payments crises, differentiated by their trade-offs between ex-ante and ex-post conditionality.5Like the IDB, other MDBs have put in place contingent financing for economic and financial crises (ADB, CAF), general liquidity needs, including shocks (World Bank), and natural disasters (World Bank, CAF). Reduction and Growth Facility (PRGF) as the Fund’s main tool // -->