Rapid financing instrument and rapid credit facility

LONDON (Reuters) - The G20 group of rich nations and big emerging powers extended their Debt Service Suspension Initiative (DSSI) this week to help the world’s poorest countries cope with the fallout of the COVID-19 crisis until the middle of next year. Below is an explanation of how the DSSI works: The DSSI was approved in April. It offers a temporary suspension of "official sector" or government-to-government debt payments to 73 countries The six-month extension announced this week will see it run until at least June 30, 2021. The payments covered are not forgiven but delayed, with a repayment period of five years and a one-year grace period. The re-scheduling is intended to be what is known as Net Present Value (NPV) neutral. The World Bank estimates that, to date, the 43 countries that have signed up for DSSI have deferred just over $5 billion of debt. Charity groups estimated that the six-month extension of the temporary freeze will provide a further $6.4 billion of relief for the 43 countries that have signed up. That would rise to around $11.5 billion if the extension was lengthened to the end of 2021 and nearly $16 billion if all 73 eligible countries took up the initiative. To receive DSSI relief, countries are required to apply for an arrangement with the International Monetary Fund. That could be either a regular programme or a shorter-term emergency facility. [Rapid Financing Instrument (RFI) or Rapid Credit Facility (RCF)] Countries have to commit to use freed...

Proposal for a Food Shock Window Under the Rapid Financing Instrument and Rapid Credit Facility Publication Date: October 5, 2022 Electronic Access: Summary: Russia’s war in Ukraine has exacerbated global economic pressures, including through a food shock. The war and food-related spillovers—higher import prices for food and fertilizer and disruptions in supply lines for food importers, and a loss of revenue for some food exporters—add to urgent balance-of-payments (BOP) needs of many Fund members. They have also exacerbated acute food insecurity, now affecting 345 million people. While the best response to address BOP pressures would generally involve an Upper Credit Tranche-quality program, such a program may not be feasible in some cases or necessary in others. This paper proposes a time-bound food shock window under the Rapid Financing Instrument (RFI) and the Rapid Credit Facility (RCF) to provide support to members in such situations. The new window would be temporary and provide low-access emergency financing that increases the amounts currently available under the RFI/RCF. Members would need to demonstrate urgent BOP needs and meet a set of qualification criteria related to the global food shock. The window would be available for 12 months from the date of Board approval of the window. Countries requesting financing under the window would also need to meet the standard qualification criteria under the RFI/RCF. Series: Policy Paper No. 2022/042 Subject: Frequency: o...

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Question (Prelims 2022) ‘’Rapid Financing Instrument’’ and ‘’Rapid Credit Facility’’ are related to the provisions of lending by which one of the following? Options A. International Monetary Fund B. Asian Development Bank C. United Nations Environment Programme Finance Initiative D. World Bank Correct Answer : A. International Monetary Fund Explanation The Rapid Financing Instrument (RFI) provides rapid and low-access financial assistance to any qualifying member country facing urgent balance of payments needs that, if not addressed, would result in an immediate and severe economic disruption. It can provide support to meet a broad range of needs, including those arising from commodity price shocks, natural disasters, conflict and post-conflict situations, emergencies resulting from fragility, and food shocks. FREE IAS COACHING AND TEST SERIES FROM IASINDEPTH. SIGN UP NOW The Rapid Credit Facility (RCF) provides rapid concessional financial assistance to low-income countries (LICs) facing an urgent balance of payments need with no ex-post conditionality where a full-fledged economic program is neither necessary nor feasible. The RCF was created under the Poverty Reduction and Growth Trust (PRGT) as part of a broader reform to make the Fund’s financial support more flexible and better tailored to the diverse needs of LICs, including in times of crisis. Source/Image: International Monetary Fund

1. Record food and fertilizer prices have triggered hardship across the global economy.1 Food price pressures had been building for a number of years before the Russia’s war in Ukraine, including due to the negative effect of the COVID pandemic and climate shocks. For many member countries, war in Ukraine has made a difficult situation worse through record food price inflation, increasing costs for fertilizers, and shortages in food supplies and particularly cereals. Food insecurity has risen to an unprecedented level, with an estimated 345 million people now being affected.2 While food and fertilizer prices have recently eased from peak levels, they are still significantly higher than in 2020–21. Moreover, substantial risks weigh on the outlook: there is a high likelihood that food availability and access challenges will continue into 2023 and become more serious as fertilizer shortages and protectionist measures affect future harvests and global trade flows. Moreover, the outlook for international prices for rice, which has thus far been relatively stable, is not favorable. As a result of these dynamics, which add to other pressures—including sharply increased energy costs and rising interest rates as central banks address accelerating inflation—many member countries are now facing serious hardship and urgent balance of payments needs. Abstract 1. Record food and fertilizer prices have triggered hardship across the global economy.1 Food price pressures had been building ...

Rapid Credit Facility is a financing mechanism offered by the International Monetary Fund (IMF) to provide immediate financial assistance to member countries facing urgent balance of payments needs, typically as a result of sudden external shocks such as natural disasters, pandemics, or other economic crises. Table of Contents • • • What is Rapid Credit Facility? Rapid Credit Facility is designed to provide quick disbursement of funds, with a streamlined approval process that can be completed in a matter of weeks, rather than the months that are typical of other IMF lending programs. The funds provided through the RCF are intended to help countries meet their urgent balance of payments needs, such as covering external debt service obligations or financing essential imports. Unlike other IMF lending programs, the RCF does not require the implementation of a full-fledged economic reform program or policy conditionality. However, countries receiving RCF funds are expected to maintain macroeconomic stability and pursue sound policies to ensure long-term economic sustainability. The COVID-19 pandemic has had a significant impact on the global economy. Countries have implemented measures to mitigate the impact of the pandemic on their economies. One such measure is the Rapid Credit Facility (RCF), which is a loan program offered by the Who is eligible for the RCF? The RCF is available to low-income countries that have a balance-of-payments need due to an exogenous shock, such as...

The Rapid Credit Facility (RCF) provides fast concessional financial assistance to low-income countries (LICs) facing an urgent balance of payments need. The RCF is one of the facilities under the Poverty Reduction and Growth Trust (PRGT) that provide flexible financial support tailored to the diverse needs of LICs, including in times of crisis. Download PDF Purpose Provide concessional, rapid, and low-access financial assistance to qualifying LICs facing an urgent balance of payments need from a wide variety of circumstances, including external shocks, natural disasters, and emergencies connected to fragility. Respond to situations where a full-fledged economic program is not necessary because the need is transitory and limited in nature, or not feasible, including when facing capacity constraints of policy implementation. Provide policy support that may help catalyze foreign aid. Eligibility All PRGT-eligible member countries facing an urgent balance of payments need. Higher income countries not PRGT-eligible can use the Rapid Financing Instrument (RFI). Windows Four windows: Regular: Urgent balance of payments needs caused by sources including domestic instability, emergencies, and fragility. Access up to 50 percent of quota per year and 100 percent of quota on a cumulative basis, with the annual access subject to a norm of 25 percent of quota. A per disbursement limit of 25 percent of quota. Exogenous shock: Urgent balance of payments needs caused by a sudden, exogenou...