IMF lending

A core responsibility of the International Monetary Fund (IMF) is to provide loans to member countries experiencing actual or potential balance-of-payments problems.

Financial assistance enables countries to rebuild their international reserves; stabilise their currencies; continue paying for imports; and restore conditions for strong economic growth, while undertaking policies to correct underlying problems.

Unlike development banks, the IMF does not lend for specific projects.

A member country may request IMF financial assistance if it has a balance of payments need, that is, if it cannot find sufficient financing on affordable terms to meet its net international payments such as imports, while maintaining adequate reserves.

WHEN TO BORROW

Upon request by a member country, IMF resources are usually made available under a lending 'arrangement' which may, depending on the lending instrument used, stipulate specific economic policies and measures a country has agreed to implement to resolve its balance of payments problem.

The economic policy programme underlying an arrangement is formulated by the country in consultation with the IMF and is, in most cases, presented to the fund's executive board in a letter of intent.

Once an arrangement is approved by the board, IMF resources are usually released in phased instalments as the programme is implemented.

EXTENDED FUND FACILITY

The Extended Fund Facility (EFF)was established in 1974 to help countries address medium- and longer-term balance-of-payments problems reflecting extensive distortions that require fundamental economic reforms.

Arrangements under the EFF are longer than stand-by arrangements - normally not exceeding three years at approval, with a maximum extension of up to one year.

However, a maximum duration of up to four years at approval is also allowed - as in the case of Jamaica - predicated on the existence of a balance of payments need beyond the three-year period; the prolonged nature of the adjustment required to restore macroeconomic stability; and the presence of adequate assurances about the member's ability and willingness to implement deep and sustained structural reforms.

Repayment is due within 4.5 years to 10 years from the date of disbursement.

Source: www.imf.org