What is IMF? How it Works?


What is IMF

The International Monetary Fund (IMF) works to achieve sustainable growth and prosperity for all of its 190 member countries. In order to boost productivity, job creation, and economic well-being, it accomplishes this by supporting economic policies that encourage monetary cooperation and financial stability. The IMF is controlled and answerable to its member nations. WHAT DOES THE IMF DO? The IMF has three critical missions: furthering international monetary cooperation, encouraging the expansion of trade and economic growth, and discouraging policies that would harm prosperity. To fulfill these missions, IMF member countries work collaboratively with each other and with other international bodies.

For all 190 of its members, the International Monetary Fund (IMF) strives to create sustainable growth and prosperity. It does this by supporting economic policies that advance monetary cooperation and financial stability, both of which are necessary to boost economic growth, job creation, and productivity. The IMF is controlled by and answerable to its member nations.

The IMF and the WTO are global organizations with almost 150 members in general. While the IMF’s central emphasis is on the global monetary and fiscal organization, and the WTO’s is on the global commerce organization, both get collectively to ensure a sound system for global trade and payments. The world monetary Fund (IMF ) is the international organization of 189 member nations that runs to secure the stability of the global monetary and fiscal system. The IMF’s mandate includes facilitating the increase and equal development of global business, encouraging exchange stability, and offering the opportunity for the peaceful improvement of countries ’ balance of payments problems. This IMF was instituted in 1945. This (IMF ) is an international organization headquartered in Washington, DC, consisting of 189 member nations.

The IMF runs to promote international development and economic stability by offering policy, advice, and finance to its members. It also makes with producing countries to help them decrease poverty and attain macroeconomic stability. Formed in 1944 in the Bretton Woods meeting in New Hampshire, it came into the formal world in 1945 with twenty-nine member nations and the purpose of constructing the global commerce method. It immediately plays a central part in the organization of balance-of-payments difficulties and global business crises. Finland turned into part of this West continent trade-liberalization move by uniting the World Bank, the International Monetary Fund (IMF), and the Bretton Woods accord in 1948, Growing into one part of the General Agreement on Tariffs and exchange (GATT) two years after and joining Finnefta (the arrangement between the European open market environment (EFTA ) and Finland) in 1961.

The authorities chose not to get Marshall’s care because of the world’s political position. Joint exchange agreements with Russia began in 1947 and continued until 1991. Tariffs were alleviated and importations from industry economies were emancipated from 1957. With the USA and UK emerging from world war 2 as the two important economic superpowers, these two nations felt the need to design the program for a more collaborative and open international system. This International Monetary Fund (IMF ), World Bank, and International business organization (ITO ) rose out of this 1944 Bretton Woods accord. While the IMF and World Bank could play important roles in this current global structure, the ITO failed to materialize, And its idea to manage the process of the non-preferential multilateral trading request could be brought up by the GATT, established in 1947. This ITO cost was I Since the beginning of these recent nation-states in Africa, Asia, the sea, and the ocean in the 1950s and 1960s, the Bretton Woods accord has broadened in range.

As a result of the new trend in monetarist, or neoliberal, economics, the part of the arrangement has extended. The IMF offers short-term stabilization aid to nations with balance-of-payments difficulties, on the condition that they enforce specific financial and monetary policies. This World Bank, in contrast, is more involved with long-term change through the restructuring of recipient economies along fixed channels. initially, Until recently, this idea of sustainable growth was imported to the main organizations funding growth projects, the World Bank and the International Monetary Fund (IMF ). The World Bank, the multilateral developing bank that lends money to help nations improve economically through finance structure and current industries, has historically funded many projects that resulted in the destruction of rainforests.

The IMF shares the same number. envisaged, together with the International Monetary Fund (IMF) and this World Bank, as one of those important towers of post-World conflict II repair and economic development. In Havana in 1948, the UN Conference on trade and business stated the draft contract for this ITO, called the Havana contract, which could have made comprehensive regulations governing trade, investment, services, and business and employment practices. The change to the integrated rate of exchange plan was completed in December 2004. Soon after, the empire advised the International Monetary Fund (IMF) that it has assumed the responsibilities of Section VIII, parts 2, 3, and 4 of these IMF Articles of Agreement, with effect from 2 January 2005. IMF members accepting these responsibilities of section VIII attempt to desist from enforcing limitations on the production of payments and transfers for new foreign dealings, or from engaging in discriminatory currency arrangements or multiple currency practices, except with IMF approval.

U. Regular consultations: The IMF has observer status in certain WTO bodies and can participate in meetings of certain WTO committees and working groups. The WTO Secretariat participates in meetings of the IMF Executive Board or Executive Liaison Committee and communicates with the World Bank and other international organizations on issues of common concern. Macro-sensitive trade issues may be part of the IMF’s surveillance activities and may be addressed in the context of IMF-supported programs when necessary to achieve program objectives. The United States has not ratified this Declaration.


The IMF has three crucial responsibilities: advancing global monetary cooperation, promoting trade and economic growth, and discouraging unfavorable policies. IMF member nations collaborate with one another and with other international organizations to carry out these missions.

How does the IMF offer advice on policy?

The monitoring and advice-giving of member nations’ economic and financial policies, or “surveillance,” is at the heart of the IMF’s mandate. The IMF assesses potential risks as part of this process, which also occurs at the global and regional levels, and suggests necessary policy changes to maintain economic development and advance financial stability.

Why is IMF surveillance crucial?

Identification of vulnerabilities that may call for corrective policy adjustments requires constant monitoring by the IMF. In the internationally integrated economy of today, where one country’s problems or policies can have an impact on many others, international cooperation on these initiatives is essential. This cooperation can be made easier by the IMF’s membership, which comprises almost all of the world’s countries.

IMF surveillance is centered on specific nations, or bilateral surveillance, and the whole economy, or multilateral surveillance.

National Level Surveillance or Bilateral Surveillance

IMF surveillance typically includes annual visits to member countries. During these visits, IMF staff discuss risks to domestic and global stability with government and central bank officials, as well as policies and reforms to address those risks. These talks focus on exchange rates, currencies, fiscal and monetary policies, and structural reforms. Discussions also extend to developments in other areas important to economic and financial stability, such as climate change and digitalization. IMF staff regularly meets with members of parliament, business, unions, and civil society. Comprehensive discussions with broader groups lead to better assessments of countries’ economic policies and prospects.
Upon completion of the evaluation, IMF staff submits a report to the Executive Board for discussion. The Commission’s opinion on the report will be made available to national authorities, completing a process known as Article 4 consultations. To ensure transparency, most member countries publish staff reports and accompanying analyzes, as well as the views of the IMF Executive Board, in a public statement.


IMF loans aim to restore conditions for stable economies and sustainable growth by giving countries space to implement adjustment policies in an orderly manner. These policies vary according to country circumstances. For example, a country facing a plunge in the prices of key export commodities may need financial support while it takes steps to strengthen its economy and expand its export base. Countries suffering from severe capital outflows may need to address issues that have led to a loss of investor confidence. Interest rates are probably too low. Fiscal deficits and debt are growing rapidly. Without IMF funding, the country’s adjustment process could be more abrupt and difficult. For example, if investors are unwilling to provide new money, countries have no choice but to adapt. Often through painful cuts in government spending, imports, and economic activity. IMF funding facilitates a more gradual and prudent adjustment. Since IMF loans are usually accompanied by a series of corrective actions, this is also a seal of approval that appropriate action is being taken.
The IMF’s various lending instruments are tailored to different types of balance of payments needs and to the specific circumstances of different member countries (see table). All IMF member countries are eligible to access IMF resources in the General Resources Account (GRA) on non-concessional terms, but the IMF grants the Poverty Reduction and Growth Trust (PRGT) its assistance to low-income countries. ) Are tailored to the diversity and needs of low-income countries. Historically, the majority of IMF support to emerging markets and advanced economies in crisis has been provided through Standby Arrangements (SBAs) to address the near-term or potential balance of payments problems. I was. The Standby Credit Facility (SCF) serves a similar purpose for low-income GENERATE countries. The Extended Fund Facility (EFF) and its corresponding Extended Credit Facility (ECF) for low-income countries are the IMF’s primary tools for providing medium-term support to countries facing persistent balance of payments problems. Is. Its use has increased significantly since the global financial crisis, reflecting the structural nature of some Member States’ balance of payments problems.
To prevent or mitigate crises and increase market confidence when risks rise, Members who already have strong policies use Flexible Credit Lines (FCL) or Precautionary Liquidity Lines (PLL) I can do it.
The Rapid Financing Instrument (RFI) and corresponding Rapid Credit Facility (RCF) for low-income countries are designed to meet the urgent balance of payments needs, such as commodity price shocks, natural disasters, and domestic vulnerabilities. Provide immediate assistance to countries with
Reflecting the situation in different countries, GRA-supported programs are expected to resolve BoP issues of their members during the program period, while PRGT programs may require a longer period to address BoP issues.

Even countries with strong fundamentals can be severely impacted by economic crises and the political influence of other countries. The COVID-19 pandemic is another example of an external shock affecting countries around the world. Crisis can take many forms, whether the cause is domestic or foreign. Financial crises arise from illiquid or failed financial institutions. Fiscal crises are caused by excessive budget deficits and debt. Countries that rely on the IMF often face multiple types of crises, as challenges in one sector spread throughout the economy. A crisis usually leads to a sharp slowdown in growth, rising unemployment, falling incomes, and increased insecurity, triggering a deep recession. In severe crisis situations, payment defaults and government debt restructuring may become inevitable.

Why do crises Happen?

The causes of crises are diverse and complex and can be internal, external, or both. Domestic factors include inadequate fiscal and monetary policies that can lead to large economic imbalances (e.g. large current account and fiscal deficits and large external and public debt). . An exchange rate set at an inappropriate level can undermine competitiveness and lead to persistent current account deficits and loss of public reserves. And a fragile financial system that can lead to economic booms and busts. External factors include shocks ranging from natural disasters to large fluctuations in commodity prices. These are common causes of crises, especially in low-income countries that have limited capacity to prepare for such shocks and rely on a limited choice of export products. In an increasingly globalized economy, sudden shifts in market sentiment can lead to volatility in capital flows.

Implementation of IMF loans

The IMF is responding with unprecedented speed to the coronavirus crisis, providing levels of financial support to help countries, especially to protect the most vulnerable and prepare for economic recovery.
The IMF provides financial support for the balance of payments needs of member countries upon request. Unlike development banks, the IMF does not finance specific projects. In response to such requests, IMF staff teams meet with governments to assess the country’s economic and financial situation and overall level of financial needs and agree on appropriate policy responses.

Progress is normally checked by monitoring policy implementation. Some arrangements, however, provide the IMF with no conditions or conditions if countries are already committed to sound policies (FCL, PLL) or if they are designed to meet urgent and pressing needs. The resource is available. Where vulnerabilities (RFI, RCF) limit the ability to implement shocks or policies. Once a country regains economic and financial health, it ensures that IMF funds are returned and made available to other member countries.<br>Upon reaching an agreement on policy and financing packages, the IMF Executive Board is recommended to endorse the country’s policy intentions and increase access to IMF resources. This process can be accelerated under the IMF’s Contingency Financing Mechanism.

Normally, a country’s government and the IMF must agree on an economic policy program before the IMF can extend credit to that country. A country’s commitment to implement a particular policy, known as policy conditionality, is almost always an integral part of IMF lending (see table). This policy program on which the agreement is based is most often presented to the Fund’s board in a “memorandum” and further elaborated in the “memorandum”.

The IMF’s Capacity Development efforts Focus on:

This allows the government to maintain fiscal sustainability. Improving infrastructures such as schools, roads, and hospitals. Build a social safety net. Promote transparency. Attract larger investments. Design tax systems to mitigate climate change and other exogenous shocks and build resilience.

Monetary and Fiscal Policy

Work with central banks to modernize monetary and exchange rate frameworks and policies, and with financial sector regulators and supervisors to strengthen financial systems and banking supervision. More recently, the IMF has also provided CDs in the areas of Fintech and cyber risk. This will improve macroeconomic and financial stability and promote inclusive growth and international trade.
Macroeconomic Frameworks and Tools: Building government capacity in macroeconomic analysis, diagnostic and modeling tools, and policy formulation and implementation, with a focus on country-specific institutional contexts.

Legal Framework

Align legal and governance frameworks with international standards, support tax and fiscal reforms, combat corruption, and combat money laundering and terrorist financing.
Statistics: Assisting in the compilation, management, and distribution of national macroeconomic and financial data. Improving these processes will provide a more accurate understanding of a country’s economy, helping governments formulate economic policies, improve the investment climate, and promote transparency and accountability.

IMF Capacity Development

For this reason, the IMF has been providing technical assistance and training to finance ministries, tax authorities, central banks, and other economic institutions for more than 50 years. This assistance will help countries strengthen their public finances, modernize currency and exchange rate policies, strengthen financial systems, advance macroeconomic frameworks, and policymaking, develop legal systems, improve governance, improve macroeconomics, and helps improve the collection and dissemination of financial data. This support also helps countries move toward the Sustainable Development Goals (SDGs).

IMF capacity development (CD) work is initiated at the request of member countries, tailored to specific needs, and available to all 190 member countries of the IMF. In recent years, low-income developing countries have benefited from about half of the IMF’s CD funding. Assistance to fragile and conflict-affected countries accounts for about a quarter of the IMF’s CDs, primarily in revenue mobilization, fiscal management, banking regulation and supervision, statistical analysis, and central banking. Emphasis. The IMF-CD is delivered to countries through targeted face-to-face and remote visits by IMF Headquarters staff. Long-term placement of a resident consultant. A global network of regional CD centers. Classroom and online training for civil servants. Free and open online learning courses. 4,444 external partners play a key role, funding more than half of the IMF’s CD activities, including support for regional CD centers, thematic funds focused on development priorities, and bilateral projects. The IMF Executive Board oversees the IMF CD to improve its effectiveness and effectiveness.

The CD strategy was last reviewed in November 2018. In particular, the Fund has worked with tax and budget authorities in many countries to help restore business activity and strengthen support for businesses and individuals without compromising safeguards and accountability. A series of approximately 90 technical notes on crisis-related policy issues has been developed and made available for the benefit of its members. IMF experts work with countries to review and update their debt management strategies. The IMF launched the COVID-19 CD Initiative to step up its support to countries as they emerge from the crisis, reopen their economies, and prepare for an inclusive recovery.
In response to increased demand, the IMF has expanded the range of online courses available to government officials and the general public and extended registration and completion deadlines. Launched the IMF Institute learning channel on YouTube, offering short, targeted, on-demand micro-learning videos.

The IMF’s capacity development work also helps countries address their development priorities by focusing on: It also provides the analytical, operational, and monitoring tools countries need to tackle inequalities.

Gender Equality:

The IMF compiles gender-specific data on financial access to help countries better understand the impact of economic policies on women. She also encourages women’s participation in the workforce, provides training on gender budgeting, publishes Best Her Practices, and empowers female government employees through training.

Climate Action:

The IMF works with countries on green tax reform and efficient carbon and energy pricing. It also helps create sound financial management frameworks and plans that enable countries to build resilience to natural disasters. It helps monitor systemic risks to financial stability from climate shocks, monitors credit risks related to vulnerabilities, and assesses the resilience of financial institutions.

Capacity Building is integrated into IMF surveillance and lending.

Strengthening economic institutions through the CD will facilitate better understanding and implementation of IMF policy advice in member countries, keep institutions informed about global innovation and risks, and help reduce crisis-related challenges and spillovers. Help to deal with In addition, IMF policy assessments and financing help identify areas where CD activities will have the greatest impact.

Robust Monitoring and Evaluation Systems ensure that the IMF’s capacity development work is results-oriented.

The IMF is strengthening its results-based approach to enable better planning and monitoring of CD activities. This approach will be complemented by a new evaluation framework to better measure and compare the performance of different types of technical assistance and training across the IMF. For example, the.
Assessment helps determine the extent to which technical assistance has improved macroeconomic stability, financial management systems, quality of economic statistics, and financial management. Similarly, these assessments help determine whether training has improved government officials’ ability to perform their jobs, analyze economic developments, and assess the effectiveness of public policies.

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