Extended Fund Facility Research Articles

The Sri Lankan Economy: From Optimism to Debt Trap

This paper provides an interpretative survey of the economic policy and performance of the Sri Lankan economy during the postindependence era, with a focus on the sources of the country's vulnerability to the unprecedented sovereign debt crisis in the wake of the COVID‐19 pandemic and prospects beyond the crisis. The prime focus of the Extended Fund Facility (EFF) program that Sri Lanka signed with the International Monetary Fund (IMF) in March 2023 is on economic stabilization through fiscal consolidation. The analysis of this present paper infers that recovery from the crisis and placing the economy on a self‐sustained growth path requires combining the standard IMF approach to macroeconomic stabilization with coherent structural adjustment reforms to redress the long‐standing anti‐tradable bias in the incentive structure that was the root cause of the vulnerability to the crisis.

The Sovereign Debt Crisis in Sri Lanka: Anatomy and Policy Options

Abstract During the COVID-19 pandemic, there was a dramatic increase in national debt levels across the world, with reported cases of downgrading sovereign debt ratings and difficulty of fulfilling debt obligations (“debt distress”), heavily concentrated in low- and middle-income countries. In this context, the unfolding sovereign debt crisis in Sri Lanka has attracted worldwide attention as the canary in the coal mine for what could become a global “development” crisis. This paper examines the Sri Lankan crisis encompassing both the sources of vulnerability to the COVD-19 shock, and stabilization and structural adjustment reforms after the debt default, with emphasis on the systemic “solvency” challenge of dealing with the massive debt overhang evolved over the previous two decades. The prime focus of the Extended Fund Facility (EFF) program that Sri Lanka signed with the IMF in March 2023 is on economic stabilization through fiscal consolidation. This paper makes a strong case for combining economic stabilization with coherent structural adjustment policies to redress the long-standing antitradable bias in the incentive structure that underpinned vulnerability of the economy to external shocks.

EVOLUTION OF THE FORMS OF FUNDING MFA PROGRAMS FOR UKRAINE

Since the first days of Russia's invasion, the European Union has been supporting Ukraine in the humanitarian, economic, military and financial spheres. The purpose of the article is to trace the changes in the conditions for the use of funds raised by the EU in the financial market and provided to Ukraine during the first years of the war under macro-financial assistance programmes (Emergency, Exceptional, Plus), as well as the recently approved Extended Fund Facility for Ukraine. Methodology. The study is based on a comparative analysis of two interrelated attributes: EU loans and grants provided to Ukraine during the full-scale war, and the design of EU bonds issued in 2022-2024. The results of the analysis show that (i) the fundamental differences from previous EU loans to Ukraine are the increase in the volume and maturity of loans and grants, accompanied by the EU assuming responsibility for debt servicing, which reduces these costs for Ukraine to zero; (ii) two modifications were identified in the way funds are raised: (1) in the financing strategy (from back-to-back to a diversified and unified financing strategy) and (2) in the risk management tools and procedures necessary to protect EU bondholders. Overall, all the changes discussed contributed to the creation of a flexible financial instrument adapted to the challenges of supporting a country at war, while ensuring predictability and accountability of the use of funds. Practical implications. The results of the analysis could help to increase the confidence of (i) EU bondholders in the safety of their securities and (ii) investors in Ukraine in the prospects of participating in Ukraine's recovery. Value/Originality. Given that the events are happening in real time, as far as the authors know, there is no published research on this topic.

An Alternative View of Sri Lanka's Debt Crisis

ABSTRACTThis article questions the validity of widely promulgated claims that Sri Lanka's debt crisis is the result of a combination of Chinese debt diplomacy and economic mismanagement in the form of fiscal and monetary excesses. The authors argue that if Sri Lanka has fallen into any kind of debt trap, it is an international sovereign bond debt trap. They further argue that the fundamental cause of the country's debt crisis is the failure of successive Sri Lankan administrations to transition towards an export‐oriented manufacturing economy focused on producing increasingly technologically sophisticated manufactured products, and lay the blame for this failure on a combination of external and domestic forces operating in tandem with one another. Since the remedial action taken by the Sri Lankan government in the context of an extended fund facility arrangement with the International Monetary Fund is premised on the contention that the source of the crisis is the protracted fiscal and monetary excesses of successive Sri Lankan administrations, this action is unlikely to offer a permanent solution to Sri Lanka's debt problem — just as similar attempts to remedy previous debt and currency crises have failed.

IMPACT OF IMF’S EXTENDED FUND FACILITY (EFF) ON MACROECONOMICS OF PAKISTAN

The International Monetary Fund's (IMF) Extended Fund Facility (EFF) utilized by several countries including Pakistan who facing the economic challenges. This study tried to analyze the impact of the IMF's EFF program on the macroeconomics of Pakistan. The study examining the different scopes of EFF program, including its objectives, conditions, and way forward. The paper also assess its effects on the main macroeconomic indicators such as economic growth, inflation, fiscal discipline, and external sector stability. The EFF program, implemented in Pakistan during a period of economic distress, aimed to address the country's balance of payment crisis, stabilize the exchange rate, restore investor confidence, and promote sustainable economic growth. Under this program, Pakistan committed to a set of economic reforms and structural adjustments, including fiscal consolidation measures, monetary tightening, and structural reforms in key sectors such as energy and taxation. However, the implementation of the EFF program also had some adverse effects on the macroeconomics of Pakistan. The program's stringent conditions, such as fiscal austerity measures and energy tariff adjustments, contributed to a temporary slowdown in economic growth. Furthermore, the austerity measures had distributional consequences, impacting vulnerable segments of society and potentially widening income inequality.

INTERNATIONAL POLITICAL ECONOMY AND IMF: EXAMINING THE EFFECTS OF EXTENDED FUND FACILITY (EFF) ON THE GOVERNANCE STRUCTURE OF PAKISTAN

The International Monetary Fund (IMF) is a global financial organization that offers financial support to nations with economic difficulties. There are serious worries about the efficacy of IMF Program conditionality on debtor countries due to the IMF's growing influence through the Extended Fund Facility Program and their performances in developing countries. The conditionality of the International Monetary Fund (IMF) Program is examined in this research in relation to Pakistan's economic governance. Due to its long-term reliance on IMF resources, Pakistan presents an intriguing case study. The influence of IMF conditionality on Pakistan's economy's governance structure and key economic indicators is examined in this study using a broad framework of qualitative elements. The study's findings demonstrate that there is consistently uncertainty in the governance structure and the execution of policy decisions in IMF lending schemes. Due to this deterioration, the country was unable to meet its macroeconomic objectives, such as reducing poverty and controlling inflation, Future perspectives on the research findings recommend that Pakistan's economic policy makers concentrate on their other sources of economic strength rather than solely relying on the IMF Program.

Cameroon

Cameroon, a fragile and conflict affected state, proved resilient to the COVID- 19 shock but is now facing increased challenges in an uncertain global environment. The recovery, which was supported by higher oil prices and non-oil production in 2021, continued in 2022, against the backdrop of Russia’s war in Ukraine, inflationary pressures, supply chain disruptions, and tight global financial conditions. Cameroon has successfully completed two reviews since the approval in July 2021 of the three-year arrangements under the Extended Credit Facility (ECF) and the Extended Fund Facility (EFF) for SDR 483 million (about US$689.5 million, or 175 percent of quota). Completion of the third review will allow the total disbursement of SDR 55.2 million (about US$73.3 million).

Jordan

"Volume 2023 (2023): Issue 049 (Jan 2023): Jordan: Fifth Review Under the Extended Arrangement Under the Extended Fund Facility and Request for Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Jordan" published on 26 Jan 2023 by International Monetary Fund.

PIDE Commentary: On the 23rd IMF Programme for Pakistan


 
 
 
 
 International Monetary Fund (IMF) issued a staff report on the seventh and eighth reviews of the extended arrangement under the Extended Fund Facility (EFF) on September 1, 2022. As per the review report, the authorities of Pakistan are allowed to draw USD 1.1 billion, keeping in view the measures taken by authorities to address fiscal and external challenges. The IMF board has also approved the extension of the EFF till June 2023 along with extra Special Drawing Rights (SDR) of 720 million and that brings the total access under the EFF to about USD 6.5 billion. The review report has also identified some priority measures to be considered by the Pakistani authorities, such as the implementation of an approved budget, marketdetermined exchange rate policy, proactive and prudent monetary policy, the expansion of the social safety net, and structural reforms related to the performance of state-owned enterprises (SOEs) and governance. The set of measures that have been identified contains both short-term and medium-term measures to promote long-term growth. In this regard, the Pakistan Institute of Development Economics (PIDE) has also been working extensively to identify the measures that are necessary to remove the bottlenecks in the economy to improve productivity and increase growth. Therefore, the objective of this document is twofold, i.e., a commentary on the measures suggested by the review report, and what other measures should be part of the programme.
 
 
 
 

Ecuador

Economic recovery is ongoing. Real GDP is expected to expand by 2.7 percent in 2022, slightly lower than expected in the last review due to the protests-related disruptions in June and slower growth in trading partners. Inflationary pressures have risen, driven by higher food and transport prices and non-tradeable services, with the headline inflation expected to reach 3.8 percent yoy at end-2022. Tighter financing conditions for all EMs, and an increasingly challenging domestic political environment sharply increased spreads and postponed international market access. The government remains committed to the Fund-supported program under the Extended Fund Facility (EFF) of SDR 4,615 million (661 percent of quota, about $6.5 billion) that was approved by the IMF Executive Board on September 30, 2020. Upon completion of the Sixth and final Review under the EFF-supported program—the first IMF program Ecuador will have completed in more than two decades— an additional SDR 497 million (about $700 million) would be made available.

Benin

On July 8, 2022, the IMF Executive Board approved 42-month Extended Fund Facility (EFF) and Extended Credit Facility (ECF) arrangements under High Combined Credit Exposure (HCCE) (391 percent of quota, about US$650 million) to help Benin meet pressing financing needs and support the country’s National Development Plan centered on achieving SDGs. The program is off to a strong start notwithstanding elevated uncertainty. While there is broad consensus that sound macroeconomic management in recent years is generating tangible dividends for the economy as a whole, the public is frustrated over the fact that this is taking time to translate into improved socioeconomic conditions for all. This sentiment has been compounded by temporary import price pressures since Russia’s invasion of Ukraine. Legislative elections will be held in early January 2023, with related risks to the program expected to be limited.

Barbados

Despite a series of economic shocks, Barbados has made good progress in implementing its Economic Recovery and Transformation (BERT) plan since the government led by Prime Minister Mia Mottley took office in May 2018. Macroeconomic stability was restored with a combination of comprehensive sovereign debt restructuring, fiscal consolidation, and structural reforms to reduce fiscal dominance and enhance growth. International reserves have increased to US$1.4 billion by end-September 2022 from a historical low of US$220 million in 2018. While fiscal consolidation was interrupted by the COVID-19 pandemic, public debt was put back on a downward path starting in FY2021/22. Building on the successful completion of a 2018-22 Extended Fund Facility (EFF), the authorities have requested a successor EFF program along with a Resilience and Sustainability Facility (RSF) to strengthen fiscal sustainability, support the structural reform agenda, and increase resilience to climate change.

Argentina

"Volume 2022 (2022): Issue 322 (Oct 2022): Argentina: Second Review Under the Extended Arrangement Under the Extended Fund Facility, Requests for Waivers of Applicability and Nonobservance of Performance Criteria, Modification of Performance Criteria, and Financing Assurances Review-Press Release; Staff Report; and Statement by the Executive Director for Argentina" published on 07 Oct 2022 by International Monetary Fund.

Pakistan

"Volume 2022 (2022): Issue 288 (Sep 2022): Pakistan: Seventh, and Eighth Reviews of the Extended Arrangement under the Extended Fund Facility, Requests for Waivers of Nonobservance of Performance Criteria, and for Extension, Augmentation, and Rephasing of Access-Press Release; Staff Report; Staff Statement; and Statement by the Executive Director for Pakistan" published on 01 Sep 2022 by International Monetary Fund.

Cameroon

Following two years of COVID-19 challenges, Cameroon, the largest economy in the Central African Economic and Monetary Union (CEMAC), is facing a new policy environment. The nascent economic recovery from mid-2021, supported by higher oil prices and non-oil production, is now subject to greater uncertainties with spillovers from the war in Ukraine, high inflationary pressures, especially on food and fuel prices, and a tightening of global financial conditions. Low vaccination rates also leave the country vulnerable to further COVID-19 waves. In July 2021, the IMF’s Executive Board approved three-year arrangements under the Extended Credit Facility (ECF) and the Extended Fund Facility (EFF) for SDR 483 million (about US$689.5 million, or 175 percent of Cameroon’s quota) to support the country’s economic and financial reform program.

Ecuador

The economy rebounded more strongly than expected in 2021 at 4.2 percent, bolstered by a well-executed vaccination campaign that allowed for a steady reopening of the economy. The recovery will continue in 2022, but at a more moderate pace of 2.9 percent. Inflationary pressures, mostly due to higher commodity prices, are expected to rise. The government remains committed to the Fund-supported program under the Extended Fund Facility (EFF) of SDR 4,615 million (661 percent of quota, about $6.5 billion) that was approved by the IMF Executive Board on September 30, 2020. Upon completion of the combined Fourth and Fifth Reviews under the EFF, an additional SDR 710 million would be made available.

Gabon

On July 28, 2021, the IMF Executive Board approved a 36-month extended arrangement under the Extended Fund Facility (EFF) with a total access of SDR 388.8 million (180 percent of quota) to help Gabon respond to the economic fallout from the COVID-19 pandemic and support the authorities’ economic and financial reform program. A nascent economic recovery is underway, and the outlook is broadly positive but remains subject to considerable uncertainty and a range of risks. The war in Ukraine will affect the economy through various channels, including higher food and fuel prices.

Kenya

"Volume 2022 (2022): Issue 232 (Jul 2022): Kenya: Third Reviews Under the Extended Arrangement Under the Extended Fund Facility and Under the Arrangement Under the Extended Credit Facility, and Requests for Modification of Quantitative Performance Criteria, and Waiver of Applicability for Performance Criteria-Press Release; Staff Report; Staff Statement; and Statements by the Executive Director and by Staff Representative for Kenya" published on 19 Jul 2022 by International Monetary Fund.

Gabon

"Volume 2022 (2022): Issue 216 (Jul 2022): Gabon: First and Second Reviews of the Extended Arrangement under the Extended Fund Facility, Requests for Waivers for Nonobservance of Performance Criteria, Establishment of Performance Criteria, and Financing Assurances Review-Press Release; Staff Report; Staff Supplement; and Statement by the Executive Director" published on 08 Jul 2022 by International Monetary Fund.

Argentina

First Review under the Extended Arrangement under the Extended Fund Facility, Request for Modification of Performance Criteria, and Financing Assurances Review