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Conditionalities aim to restore macroeconomic stability, reduce poverty – IMF says 

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Conditionalities aim to restore macroeconomic stability, reduce poverty – IMF says 

The International Monetary Fund (IMF) has been an important player in the global economy since its inception in 1944. The IMF provides financial assistance to member countries that are experiencing balance of payments problems, which can arise from a variety of economic factors, such as a decline in exports, a sharp increase in imports, or a sudden drop in foreign investment. In return for this financial assistance, the IMF requires borrowing countries to make policy adjustments to address the underlying economic problems that led them to seek assistance in the first place.

The IMF has stated that conditionality helps countries solve balance of payments problems without resorting to measures that harm national or international prosperity. Conditionality is included in financing and non-financing IMF programs with the aim of progress towards the agreed policy goals. The overarching goal is always to restore or maintain balance of payments viability and macroeconomic stability while setting the stage for sustained, high-quality growth. For low-income countries, there is an additional objective of reducing poverty.

The IMF assesses conditionality through a variety of tools, including indicative targets, prior actions, quantitative performance criteria (QPCs), and structural benchmarks. Indicative targets are flexible numerical trackers set for quantitative indicators to monitor progress towards program objectives, such as a ceiling on the general government wage bill, ceiling on domestic arrears, and ceiling on government borrowing from the central bank. Prior actions are steps a country agrees to take before the IMF approves financing or completes a review, such as fiscal revenue measures, clearance of external arrears, governance reform, and banking sector restructuring plans.

QPCs are specific, measurable conditions for IMF lending that always relate to macroeconomic variables under the control of country authorities, such as monetary and credit aggregates, international reserves, fiscal balances, and external borrowing. Examples of QPCs include a ceiling on new public guarantees, a ceiling on external debt, and a ceiling on public sector external arrears. Structural benchmarks are critical reform measures used as markers to assess program implementation, such as strengthening tax administration, improving fiscal transparency, improving anti-corruption and rule of law, and reforming State-Owned Enterprises (SOEs) and their governance.

The IMF Executive Board periodically conducts program reviews to assess whether the program is on track or needs to be adjusted in light of new developments. If a country misses a QPC condition, the IMF Executive Board may approve a waiver if it is satisfied that the program will still succeed, which may be because the deviation was minor or temporary, or because national authorities are taking corrective actions.

Tags: ConditionalitiesConditionalities aim to restore macroeconomic stabilityIMFmacroeconomic stabilityreduce poverty - IMF says
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