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Rapid Financing Instrument and Rapid Credit Facility UPSC pre 2022

This question was purely based on current affairs.

 

Recently Rapid Financing Instruments and Rapid Credit Facility were in news, due to Sri Lankan economic crisis.

 

It was a medium-level question because it covered almost in all the sources of the current affair but not in many standard sources.

 


“Rapid Financing Instrument” and “Rapid Credit Facility” are related to the provisions of lending by which one of the following ?

(a) Asian Development Bank

(b) International Monetary Fund

(c) United Nations Environment Programme Finance Initiative

(d) World Bank

 

Solution-A

 

What is Rapid Financing Instrument (RFI)?

 

It provides rapid financial assistance, which is available to all member

countries facing an urgent balance of payments need.

 

It is flexible financial support and it can address the diverse needs of member countries.

 

The RFI replaced the IMF’s previous emergency assistance policy and can be used in a wide range of circumstances.

 

Financial assistance under the RFI is provided in the form of outright purchases without the need for a full fledged program or reviews.

 

 

What is Rapid Credit Facility (RCF)?

 

IMF provides rapid concessional financial assistance to low-income

countries (LICs) facing an urgent balance of payments (BoP) 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).

 

Trick - RFI and RCF are both related to IMF giving loans to countries in the BOP crisis.

 

RFI

RCF

ALL

LICs

 

 

What is  Poverty Reduction and Growth Facility (PRGF)?

 

It is an arm of the IMF which lends to the world's poorest countries.

 

The PRGT has these three concessional lending facilities:

 

Extended Credit Facility(ECF):

Sustained medium- to long-term engagement in case of prolonged balance of payments problems

 

Standby Credit Facility (SCF): Financing for LICs with actual or potential short-term BOP and adjustment needs caused by domestic or external shocks, or policy slippages—can also be used on a precautionary

basis during times of increased risk and uncertainty

 

Rapid Credit Facility (RCF):

Rapid financial support as a single up-front payout for LICs facing urgent BOP needs—possible repeated disbursements over a (limited) period in case of recurring or ongoing balance of payments needs.

 

Now let's revise the concept using questions.

 

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