History
The IMF was established in 1944 in the aftermath of the Great Depression of the 1930s. There were 44 founding member countries. They sought to build a framework for international economic cooperation. Today, it has a membership from190 countries, with staff drawn from 150 nations. The IMF is governed by and accountable to those 190 countries that make up its near-global membership.
Mandate
The IMF works to achieve sustainable growth and prosperity for all of its member countries by supporting economic policies that promote financial stability and monetary cooperation, which are essential to increase productivity, job creation, and economic well-being.
Structure
- At the top of its organizational structure is the Board of Governors.
- The day-to-day work of the IMF is overseen by its 24-member Executive Board, which represents the entire membership and supported by IMF staff.
- The Managing Director is the head of the IMF staff and Chair of the Executive Board. S/he is assisted by four Deputy Managing Directors.
What is SDR (Special Drawing Rights)?
SDRs (Special Drawing Rights) were created by IMF in 1969 to supplement the official reserves (Currency + Gold) of member countries. They play an important role in providing liquidity to the global economic system. SDRs aren’t a currency nor a claim on IMF but they can be converted into reserve currency with the help of other IMF members. SDRs are distributed through a process called General Allocation in proportion to their Quota share in IMF reflecting the strength of their economy. The value of SDR is updated daily and is defined by a basket of major currencies (US Dollar, EURO, Chinese Renminbi, Japanese Yen & UK Pound Sterling).
Members can exchange SDRs for freely useable currencies held by other members. This brings down their SDR holdings but provides them with currency to either help meet the balance of payment needs or add to their own reserves. Members can also use their SDRs to pay for IMF loans or quota increases. Most exchanges of SDRs for currency take place through Voluntary Trading Arrangements (VTAs). Any use of SDRs should be consistent with macroeconomic sustainability. The use of SDRs should not delay changes to macroeconomic policies, reforms or debt restructuring where needed.
In August 2021, total global allocations of SDRs were increased to a total equivalent to $650 billion. 190 IMF members can voluntarily exchange SDRs for currencies among themselves.
How is the IMF funded?
IMF funds come from three sources:
- Member Quotas
- Credit Arrangements
- Bilateral Borrowing Agreements
Member Quotas
Member quotas are the primary source of IMF funding. A member country’s quota reflects its size and position in the world economy.
Credit arrangements
New Arrangements to Borrow (NAB) between the IMF and a group of members and institutions are the main backstop for quotas. In January 2020, the IMF Executive Board agreed to double the size of the NAB to SDR 365 billion, or $504 billion.
Bilateral Borrowing Agreements
Member countries also have committed resources through bilateral borrowing agreements (BBAs). In 2020, the IMF Executive Board approved a new round of BBAs, totaling SDR 138 billion, or $190 billion.
How does the IMF work?
IMF provides the following services to its members:
- Financial Assistance (Lending)
- Policy Advice (Surveillance)
- Capacity Development
Financial Assistance
The IMF provides loans—including emergency loans—to member countries experiencing actual or potential balance of payments problems. The aim is to help them rebuild their international reserves, stabilize their currencies, continue paying for imports, and restore conditions for strong economic growth, while correcting underlying problems.
Policy Advice
The IMF monitors the international monetary system and global economic developments to identify risks and recommend policies for growth and financial stability. The Fund also undertakes a regular health check of the economic and financial policies of its 190 member countries. In addition, the IMF identifies possible risks to the economic stability of its member countries and advises their governments on possible policy adjustments.
Capacity Development
The IMF provides technical assistance and training to governments, including central banks, finance ministries, revenue administrations, and financial sector supervisory agencies. These capacity development efforts are centered on the IMF’s core areas of expertise ranging from taxation through central bank operations to the reporting of macroeconomic data. Such training also helps countries tackle cross-cutting issues, such as income inequality, gender equality, corruption, and climate change.
Pakistan and IMF
Pakistan has been a member of the International Monetary Fund since 11 July, 1950. IMF has provided loans to Pakistan on 23 occasions. Pakistan has outstanding loans and purchases of 5404.25 million SDR as of March 31, 2022. Pakistan’s SDR quota is 2031 million. The resident representative of IMF for Pakistan is Esther Perez Ruiz.
In 2019, when economic conditions worsened, they went to IMF for the twenty-second time for a loan of US$1 billion. IMF gave loan based on conditions such as the hike in energy tariffs, removal of energy subsidy, increase in taxation, privatization of public entities and fiscal adjustments to the budget. But PTI government did not remove subsidies and energy tariffs were not changed and thus payments were stopped by IMF. Now PDM government led by Shahbaz Sharif is bent on reviving the IMF program. When petroleum prices were increased on June 16, 2022, a levy of Rs. 5/liter was being taken by the Government but it is expected to increase to Rs. 50/liter during FY 22-23. Moreover, a budget of 9.5 trillion PKR was proposed for FY 22-23 but it has been increased to 9.9 trillion PKR and an additional 400 billion PKR will be collected through sales tax. Thus, there will be more burden on people and inflation will be on the rise again.
Latest developments (May 2022)
An International Monetary Fund (IMF) mission led by Mr. Nathan Porter held both in-person and virtual discussions in Doha, Qatar with the Pakistani authorities during May 18-25 on policies to secure macroeconomic stability and support sustainable growth in Pakistan. At the conclusion of the mission, Mr. Porter, issued the following statement:
“The mission has held highly constructive discussions with the Pakistani authorities aimed at reaching an agreement on policies and reforms that would lead to the conclusion of the pending seventh review of the authorities’ reform program, which is supported by an IMF Extended Fund Facility arrangement. Considerable progress was made during the mission, including on the need to continue to address high inflation and the elevated fiscal and current account deficits, while ensuring adequate protection for the most vulnerable. In this regard, the further increase in policy rates implemented on May 23 was a welcome step. On the fiscal side, there have been deviations from the policies agreed in the last review, partly reflecting the fuel and power subsidies announced by the authorities in February. The team emphasized the urgency of concrete policy actions, including in the context of removing fuel and energy subsidies and the FY2023 budget, to achieve program objectives.”
“The IMF team looks forward to continuing its dialogue and close engagement with Pakistan’s government on policies to ensure macroeconomic stability for the benefit all of Pakistan’s citizens.”
IMF Informational Videos
How IMF Works?
Financial Operations Overview
IMF Quotas
Support for Low-Income Countries
What is SDR?
Explaining SDRs?
FAQs
190 member countries
700 19th St NW, Washington DC, 20431
About SDR 707 billion or US $1 trillion
Most of the money comes from its members who contribute based on their size and economic position
Approximately 2900 staff from 150 countries
United States, Japan, France, United Kingdom, Germany and Italy