The International Monetary Fund (IMF) has disclosed that conditions set out to get final loan approval helps countries solve balance of payments problems without resorting to measures that harm national or international prosperity.
According to the Bretton Wood Institution, when a country borrows from the IMF, the government agrees to adjust its economic policies to overcome the problems that led it to seek financial assistance.
“These policy adjustments are conditions for IMF loans and help to ensure that the country adopts strong and effective policies.”
Bretton Wood Institution
These measures, as indicated by the Fund, aim to safeguard IMF resources by ensuring that the country’s finances will be strong enough to repay the loan, allowing other countries to use the resources if needed in the future.
“Conditionality is included in financing and non-financing IMF programs, with the aim to progress towards the agreed policy goals.”
International Monetary Fund
The Fund revealed that member countries including Ghana that borrow from the IMF have primary responsibility for selecting, designing, and implementing policies to make their economic programme successful. The programme is described in a letter of intent, which typically includes a memorandum of economic and financial policies for more detailed description of the policies.
“The program’s objectives and policies depend on a country’s circumstances. The overarching goal is always to restore or maintain balance of payments viability and macroeconomic stability while setting the stage for sustained and high-quality growth. For low-income countries, there is an additional objective of reducing poverty.”
International Monetary Fund
IMF Lists Out Conditions For Granting Loans To Countries
According to IMF, a country’s capabilities for meeting the requirement of a loan is assessed by means of the Indicative Target, Prior actions, Quantitative performance criteria (QPCs), and Structural benchmarks.
The indicative targets, as explained by IMF, are flexible numerical trackers set for quantitative indicators to help monitor progress in meeting a nation’s program objectives.
According to IMF, as a country’s uncertainty is reduced, the indicative targets may become Quantitative performance criteria (QPCs), with appropriate modifications – such as ceiling on the general government wage bill, ceiling on domestic arrears and ceiling on government borrowings from the central bank.
“Heightened uncertainty and limited capacity may also justify greater use of indicative targets under certain circumstances. QPCs are specific measurable conditions for IMF lending that always relate to macroeconomic variables under the control of country authorities.
“Such macroeconomic variables include monetary and credit aggregates, international reserves, fiscal balances, external borrowing, ceiling on new public guarantees, ceiling on external debt and ceiling on public sector external arrears.”
International Monetary Fund
IMF in its explanations noted that there are steps a country agrees to take before the Fund approves financing or completes a review. “This is to ensure that a program will have the necessary foundation for success,” it added.
“Prior actions focuses on the fiscal revenue measures, clearance of external arrears, governance reform, and banking sector restructuring plan.”
International Monetary Fund
Commenting on the Structural benchmarks, IMF pointed out that they are reform measures that often cannot be quantified but are critical for achieving programme goals and used as markers to assess program implementation.
“Structural Benchmarks are strengthening tax administration, improved fiscal transparency, improved anti-corruption , rule of law and reform State-Owned Enterprises (SOEs) and their governance.”
International Monetary Fund
The IMF Executive Board periodically conducts programme reviews to assess whether a country’s designed programme is on track or needs to be adjusted in light of new developments.
If a country misses a QPC condition, the IMF Executive Board may approve a waiver if it is satisfied that the programme will still succeed. This may be because the deviation was minor or temporary, or because national authorities are taking corrective actions.
Missed structural benchmarks and indicative targets do not require waivers but are assessed in the context of overall program performance.
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