IMF
What is the Extended Fund Facility (EFF) of the IMF?
WHAT?
The Extended Fund Facility (EFF) is one of the key lending instruments of the International Monetary Fund (IMF), designed to assist countries facing serious medium- to long-term balance of payments problems due to structural weaknesses.
DETAILS ABOUT EEF
- Purpose : Support economic programs to overcome structural issues and stabilize the economy.
- Launched : 1974
- Loan Duration : Typically 3 to 4 years (can be extended to 5).
- Repayment Period : Starts 4.5 years after disbursement and is repayable over 10 years.
- Interest Rate : Concessional for low-income countries; otherwise based on market rates.
- Conditions : Comes with structural reform conditions, like fiscal discipline, tax reforms, privatization, etc.
- Disbursement : Made in tranches based on performance reviews.
When Is EFF Used?
EEF is used by the countries which have prolonged balance of payments deficits, face low reserves or debt distress, and require deep economic reforms (not just temporary liquidity help. Recent Example for Pakistan (2023–2024) where the IMF approved a $3 billion EFF in July 2023. It was provided to to stabilize Pakistan's economy, reduce fiscal deficit, and reform energy and tax sectors. But the loans sanctioned also requires strict performance targets to be met by the governments, such as increasing energy tariffs, removing subsidies, and expanding tax base.
Reforms Often Required under EFF
- Reducing fiscal deficits.
- Strengthening tax systems.
- Restructuring public enterprises.
- Financial sector reforms.
- Central bank independence.
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