IMF approves $3 bn bailout for Sri Lanka

IMF approves $3 bn bailout for Sri Lanka

Recently the International Monetary Fund (IMF) has approved a bailout of $3 billion for Sri Lanka.

IMF bailouts usually include a financial package, a structural reform package, and special debt conditions. The structural reform package requires the borrowing country to undertake domestic economic reforms.

India, Japan and China have played a key role in securing IMF assistance for Sri Lanka by providing funding assurances. These three countries are also the three largest bilateral lenders to Sri Lanka. Japan is a member of the Paris Club.

The bailout is provided under the Extended Fund Facility (EFF) of the IMF. This assistance is given when a country is facing serious balance of payments (BoP) problems in the medium term due to structural weaknesses of the economy, which may take some time to resolve.

EFF assistance comes with a number of conditions attached to it to address the structural weaknesses in the economy that led to the BoP crisis.

Other Important Credit Facilities of IMF

  • Standby Arrangement: It is given to meet a country’s external financial needs and to support its adjustment policies with short-term financing.
  • Flexible Credit Line: This facility is made available to countries with very strong policy framework to provide loans to prevent and overcome the crisis.
  • Standby Credit Facility: Under this, financial assistance is provided to low income countries with short-term BoP needs.
  • Extended Credit Facility: This facility is available for countries with long-standing BoP problems.
  • Precautionary and Liquidity Line: This is available to countries that have strong economic fundamentals but have weaknesses that prevent them from using the flexible credit line.

International Monetary Fund (IMF)

The establishment of this institute was envisaged at the Bretton Woods Conference, 1944. It is a specialized United Nations agency. India is its founding member.

Functions-

  • It monitors the economic and financial policies of its member countries.
  • It provides policy advice to nations to promote international financial stability and monetary co-operation.
  • Unlike development banks, the IMF does not make loans for specific projects. Also, finance is available in the form of precautionary funding to help protect against a crisis.

Source – Indian Express

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