Extended Fund Facility (EFF) arrangement

•  The International Monetary Fund (IMF) Executive Board has completed the twelfth and final review of Pakistan’s three-year economic reform program supported by an Extended Fund Facility (EFF) arrangement. The Board’s decision enables the immediate disbursement of the final tranche in an amount equivalent to the SDR 73 million in the IMF currency or about $102.1 million. Even though India wanted to isolate Pakistan on international level, but there is no opposition from India side on this decision because is is not big a amount.

About Extended Fund Facility (EFF) arrangement

• The EFF was established to provide assistance to countries: (i) experiencing serious payments imbalances because of structural impediments; or (ii) characterized by slow growth and an inherently weak balance of payments position.
• The EFF provides assistance in support of comprehensive programs that include policies of the scope and character required to correct structural imbalances over an extended period
• It is an IMF lending facility to help members with balance of payments problems that need an adjustment period longer than that provided for under a standby arrangement.
• A country requesting an extended fund facility outlines its objectives and policies for the period of the arrangement, usually about three years, and each year presents a detailed statement of the measures it plans over the next 12 months.
• The Extended Fund Facility was created in 1974 to help the developing countries over longer periods (up to 3 years) than stand-by arrangements (12-18 months). Further, in this facility developing countries can borrow more than their quota. The loans taken under this facility can be paid back over a period of 4-10 years.

Analysis:

• Under the extended fund facility, since developing countries can borrow to meet for long- term balance of payments difficulties stringent conditions are to be fulfilled for availing borrowing facility under this scheme. A country borrowing under this programme has to provide every year a detailed statement of measures and policies it has adopted to solve its balance of payments problems.
• This facility represented an important and significant shift in emphasis from viewing the balance Of payments as a stabilization problem to recognizing the balance of payments as a fundamental long-term constraint on growth that cannot be rectified in a short period of time.
• This is very important method of finance support by IMF for meeting balance of payments difficulties of developing countries. However in recent years other special facilities provided by IMF are being extensively used by the developing countries to tackle their problem arising from balance of payments.
• EEF have a strong focus on structural reforms to address institutional or economic weaknesses, in addition to policies that maintain macroeconomic stability.
• The EFF has flexibility in the frequency of reviews based on the strength of the country’s policies and the nature of its financing needs.

By: Vishal