April 13th, 2023: A new extended agreement for four years was authorized by the IMF under the EEF (Extended Fund Facility). IMF? EEF? Read the article to know more.
As per Ukrainian Finance Minister Sergii Marchenko, Ukraine has received the first instalment of a new International Monetary Fund (IMF) EEF programme, worth $2.7 billion. Sergii Marchenko tweeted, “Today Ukraine received the first $2,7bn tranche under the new IMF EFF program. Grateful to our partners for supporting Ukraine on the way to victory.”
But let us understand first what is IMF and what does it do?
The International Monetary Fund (IMF) is like a bank for countries. It helps countries that are having trouble with their money, like if they don't have enough money to pay for the things they need, or if they're having trouble paying their bills.
Just like a person can borrow money from a bank, a country can borrow money from the IMF. But in return for the loan, the IMF asks the country to make some changes to the way it manages its money. This might mean cutting back on spending, collecting more taxes, or making it easier for businesses to trade with other countries.
The IMF also helps countries talk to each other about their money problems and work together to find solutions. And, just like a bank, the IMF makes sure that countries are using the money they borrow in a responsible way, so that they can pay it back and get their money problems under control.
So, in a nutshell, the IMF helps countries manage their money better so they can grow and thrive.
The IMF is headquartered in Washington, D.C.
What is EEF? and how is it different from EMF which Bangladesh received from IMF?
EEF: The Extended Fund Facility (EFF) offers financial support to nations who are experiencing severe medium-term financial issues as a result of structural weaknesses that require time to address. To help countries implement medium-term structural reforms, the EFF offers longer program engagement and a longer repayment period.
Typically approved for periods of 3 years, but may be approved for periods as long as 4 years to implement deep and sustained structural reforms with a repayment over 4½–10 years in 12 equal semiannual installments.
ECF: IMF's Extended Credit Facility (ECF) provides financial assistance to countries with protracted balance of payments problems. Meaning countries which IMF understands will take a longer period to repay the loans. This generally is the case with LICs (which stands for Low Income Countries) where IMF understand the economic recovery of that Nation will take a longer period of time to be able to repay the loan.
The loan is typically approved for 3-5 years with a maximum duration of 5 years. There could be a grace period of 5½ years. The rate of interest currently is 0%.
The ECF was created under the Poverty Reduction and Growth Trust (PRGT) to make the Fund’s financial support more flexible and better tailored for the low-income countries (LICs), including in times of crisis. The ECF is the Fund’s main tool for providing medium-term support to LICs.
Back to the main article:
The IMF's recently unveiled programme aims to establish fiscal, external, price, financial, and economic policies that support economic recovery while promoting long-term growth in the context of post-war reconstruction and Ukraine's path towards EU membership. This agreement is a component of a $115 billion overall aid package for Ukraine.
While in order to provide Ukraine with 8,000 artillery rounds, Norway and Denmark will work together. “Norway donates the shells, while Denmark donates the associated fuzes, propellant bags and primer cartridges,” said the Norwegian government.
Given the extraordinarily high level of uncertainty Ukraine is facing, its IMF-supported programme proposes a two-phased strategy.
First phase - The emphasis will be on (i) incorporating a strong budget for 2023 and boosting revenue mobilisation, as well as by avoiding new methods that might weaken tax revenues, (ii) maintaining steady disinflation and exchange rate stability, including through maintaining adequate foreign exchange reserves, and (iii) promoting central bank autonomy and long-term financial soundness, such as by developing a more thorough evaluation of the health of the banking industry.
Second phase - More ambitious structural changes will be the focus of the program's second phase in order to strengthen economic stability, aid in the early stages of post-war rebuilding, build resilience, and spur stronger long-term development, notably in the light of Ukraine's EU admission aspirations.