INTERNATIONAL FINANCE

TOPIC : IMF LENDING FACILITIES

Presented by

Muhammed Riyas
Roll no : 21
Introduction

• The main purpose of IMF lending facilities is to pr

ovide loans to member countries experiencing actual or
potential balance of payments problems.
• This financial assistance helps countries in their
efforts
– to rebuild their international reserves,
– stabilize their currencies,
– continue paying for imports, and
– restore conditions for strong economic growth, whil
e undertaking policies to correct underlying problems.
IMF lending facilities

 Gold reserve tranche

 First credit tranche
 Upper credit tranche
 Stand by arrangements
 General agreement to borrow
 Extended credit facility
 Compensatory Financing facilities
 Oil facility
 The trust fund
 Structural adjustment Fund
 SDR
 Poverty reduction and Growth facilities (PGRF)
Gold Reserve Tranche

 Initially, upon joining the IMF and signing the Articles of

Agreement, a member country had to pay 25 percent of its quo
ta in gold called gold tranche and the remaining 75 percent
in its own currency. Beginning with the year 1978, the Fund
no longer required the payment of the reserve tranche in gol
d.
 Under IMF rules, a member country could borrow from the IMF
an amount equal to 25 percent of its quota in any given year
. Any borrowing above this subscription requires the IMF's a
pproval, and it is granted only for resolving a country's ba
lance of payments problems.
First Credit Tranche

 Under the Credit Tranche Policies, the IMF makes credit

available in four tranches (segments), each equal to 25 per
cent of a member’s quota. The First Credit Tranche represe
nts use of IMF resources up to the limit of the first tranc
he on fairly liberal terms.
 Requests for use of IMF resources beyond the first cred
it tranche require substantial justification for the expect
ation that the member’s balance of payments difficulties w
ill be resolved within a reasonable period of time.
Upper Credit Tranche

 Upper credit tranche drawings are made in installments, or

phased, and are released when performance targets are met.
 Such drawings are normally associated with Stand-By or Exte
nded Arrangements, which typically seek to resolve balance
of payments difficulties and to support structural policy r
eforms where appropriate. Performance criteria and periodic
reviews are used to assess policy implementation.
Stand By Arrangements

 Historically, the bulk of non-concessional IMF assistance has

been provided through SBAs. The SBA is designed to help countr
ies address short-term balance of payments problems. Program t
argets are designed to address these problems and disbursement
s are made conditional on achieving these targets.
 The length of a SBA is typically 12–24 months, and repayment
is due within 3¼-5 years of disbursement. SBAs may be provided
on a precautionary basis—where countries choose not to draw u
pon approved amounts but retain the option to do so if conditi
ons deteriorate. The SBA provides for flexibility with respect
to phasing, with frontloaded access where appropriate.
 General Agreement To Borrow

 In December, 1961, the Fund took a decision on a General Arrangem

ent to Borrow (G.A.B.), according to which the Fund has been authoriz
ed to borrow supplementary resources under Article VII of the Agreeme
nt. The object of the Agreement is to “enable the IMF to fulfill mor
e effectively its role in the international monetary system in the ne
w conditions of widespread convertibility, including greater freedom
for short-term capital movement.”
 A borrowing/lending medium for members of the Group of Ten. Membe
rs of the lending country deposit funds into the International Moneta
ry Fund (IMF), which are made available to be withdrawn by the borrow
ing member in need. One of the advantages of this is that each countr
y deals in their own currency, leaving all conversions to the IMF.
Extended Fund Facility

 The Extended Fund Facility (EFF) provides long-term assis

tance to support members’ structural reforms to address bala
nce of payments difficulties of a long-term character. Drawin
gs under extended arrangements are repayable in 12 semiannual
installments 4½ 10 years after disbursement.
Compensatory Financing Facility

 The Compensatory Financing Facility (CFF) was a special IMF fin

ancing facility established in 1963. Until its elimination in 2
009, the CFF provided resources to members who encountered bala
nce of payments difficulties, arising out of export shortfalls
or excess costs of cereal imports that were temporary and resul
ted from events that were largely beyond the members’ control.
Oil Facility

 Two Oil Facilities were established in response to the oi

l price shock in the 1970s.
 – The first Oil Facility was created in June 1974 and lapse
d in December 1974.
 – The second Oil Facility was created in April 1975 to prov
ide additional financing, and lapsed in March 1976.
 Both facilities aimed at providing supplementary financing to
member countries facing balance of payments problems and were
adversely affected by higher oil prices. Loans under the Oil
facilities were repayable in 16 quarterly installments 3–7 y
ears after disbursement.
 The Trust Fund

 The Trust Fund (1976-1981) was set up to provide special balance

of payments assistance on concessional terms to developing membe
rs. These loans offered a 5½ years grace period and were repayab
le in 10 years, at an interest rate of ½ percent per annum.
 Trust Fund Interest - The Trust Fund Interest is payable sem
iannually by a member on outstanding TF credit.
Structural Adjustment Facility

 The Structural Adjustment Facility (SAF) was created in 1986

to provide concessional financing to assist low-income countr
ies in addressing balance of payments financing needs arising
from structural weaknesses. The SAF was financed by reflows o
f Trust Fund repayments, and its loans were extended on the s
ame terms with a 5½ years grace period and repayable in 10 ye
ars and at the interest rate of ½ percent per annum.
 SDR

 The Special Drawing Right (SDR) is an interest-bearing reserve asset cre

ated by the IMF to supplement members’ reserve assets. It is a purely o
fficial asset and can only be held and used by members in the SDR depart
ment, the IMF, and certain designated official entities. SDR holdings ca
n be exchanged with other members for freely usable currency.
 SDR Allocations are a distribution of SDRs to members by decision of the
IMF. A general allocation requires a finding by the IMF that there is a
global need for additional liquidity. Allocations of SDRs are made to pa
rticipants in the SDR department (currently, all IMF members are partici
pants) in proportion to their quotas in the IMF.
 The SDR Interest Rate is a weighted average of interest rates on short-t
erm financial instruments in the markets of the currencies included in t
he SDR valuation basket. It is determined on a weekly basis and serves a
s basis for calculating interest paid and charged to members
IMF Quota share(approx.)
Poverty Reduction & Growth Facili
ties

 The Poverty Reduction Growth Trust (PRGT) was established in 1

987 to provide concessional assistance to low-income members and wa
s subsequently enlarged and renamed. PRGT was previously known as E
SAF (1987-1999), PRGF (1999-2006), PRGF-ESF (2006-2010) Trusts.
 The PRGT provides financial assistance under three facilities:
 – the Extended Credit Facility (ECF) to address protracted balanc
e of payments (BOP) needs,
 – the Standby Credit Facility (SCF) to address short-term and pre
cautionary BOP needs, and
 – the Rapid Credit Facility (RCF) to provide rapid low access wit
h limited conditionality to meet urgent BOP needs
Thank you...