IMF Funding Arrangements

Author(s): Central Bank Of Barbados

Created 08 Aug, 2018
Views: 3587

An IMF financing facility provides access to low-cost funding which strengthens a country’s international reserves position in the short-term and creates opportunities to unlock policy based loans from other multilateral organisations such as the Inter-American Development Bank (IADB) and the Caribbean Development Bank (CDB). For Barbados, the effective implementation of its IMF-supported economic recovery and transformation programme is also likely to have a favourable impact on the sovereign credit rating and eventually restore access to international capital markets.

Given the medium-term nature of Barbados’ economic adjustment needs, it is likely to qualify for support under the institution’s Extended Fund Facility (EFF), as opposed to a stand-by arrangement (SBA) which is geared for shorter-term engagement. In its 1982-84 and 1992-93 IMF programmes, Barbados accessed the SBA facility which is flexible in length, usually covering a period of 12–24 months, but no more than 36 months. However, when a country faces inherent structural deficiencies and is able and willing to implement deep and sustained structural reforms, consideration can be given to a programme under an EFF which typically lasts between 36 and 48 months.

Barbados’ access to IMF resources is determined by its quota, which currently stands at SDR94.5 million or approximately US$135 million. Normal access under the EFF allows a country to borrow up to 145% of its quota annually or 435% cumulatively over the life of a programme. In exceptional circumstances, a country may borrow above normal access limits. However, the actual size of the facility will be influenced by the country’s balance of payments need, the strength of its adjustment programme and its capacity to repay. 

When a country borrows from the IMF, it commits to implement policies to correct structural deficiencies and restore economic growth. These commitments are referred to as conditionality, the degree of which partly reflects the nature of the adjustment required to restore macroeconomic stability. Programme design establishes quantitative performance criteria and may also incorporate measures to address issues pertaining to debt management, expenditure reform – inclusive of state-owned enterprises – tax administration and reforms to strengthen international competitiveness.

Negotiations for Fund programmes may vary in length, and the speed with which the negotiations of these reforms can be completed will influence our capacity to make the first drawdown of financing.

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