IMF bailout package | Sri Lanka and Pakistan to get bailout package from IMF.

Both Sri Lanka and Pakistan the cash-strapped nations sought bailout package from International Monetary Fund. In this content we shall try to discuss on key areas - how IMF gives loans to such nations, what are the terms and conditions before credit to inflation-stricken countries, and more. So, lets starts. 

Recently both Sri Lanka and Pakistan the cash-strapped nations sought financial help or we can say bailout package from the International financial body, IMF in order to reform economic condition in their countries, by taking short term loans.

When a country facing huge economic crisis and is not getting any help from other institutions then it seeks IMF. And it is seen in both Sri Lanka and Pakistan facing Currency Crisis, where domestic prices continue soaring and their currency value decreasing. 

Causes of Economic Crisis 

Experts tell some countries come on the brink of economic crisis due many reasons like -

 Mismanagement of Currency by the Central Bank under the pressure of government.  When a government makes lucrative promises to the citizen, to full fill , the government orders its Central bank to print more currency. And this results in availability of more currency in the markets and further it lead to high prices of commodities. Due to this their domestic currency decreases. Therefore, no foreign investors willing to show interest in investment. And this become worry for foreign reserves. 

What is the IMF ? 

IMF stands for International Monetary Fund, is headquartered in Washington DC, provides short term loans to only the cash-strapped or inflation stricken nations. It was established in 1945 in a Brettonwood summit, aimed to promote export and to control currency devaluation. Later on, it starts working as a "Last Creditor" to the cash-strapped nations.

Sources of IMF 

IMF collects money from its member countries, makes funds. Unlike the World Bank, which gives loans  on development of infrastructure, education, health, etc, the IMF gives loans for restore economy or to save the economy of the country. 

Different types of Loan Facilities by IMF 

1. ECL - Extended Credit Line. It is provide to those nations which has a strong base and facing no economic crisis, but have apprehensions of economic crisis in near future.

2. PLL- Precautionary and Liquidity Landing. It is provide which has a strong economic base, but has some problems like crisis of liquidity.

3. SBA - Stand By Arrangement. Those nations facing severe challenge like Balance of Payments. It is mostly used in world.

4. EFF - Extended Fund Facility. It is provided to those which is facing severe Balance of Payments and facing big economic crisis. Both Sri Lanka and Pakistan are being provided from this facility. 

Terms and Conditions of IMF before providing loans.  

1. The cash-strapped country has to do some structural reforms in its economy.

2. The country is asked to less spend on public expenditures.

3. To promote privatisation.

4. To reduce pensions and other schemes.

Criticism. 

1. The terms and conditions made by the IMF, is somehow not favourable for the common people. Because until the government repay the loans, there are no development in basic infrastructure like construction of roads, government schools and colleges, and other developmental projects, welfare schemes. 

2. There is a huge possibility of undermining of sovereignty. Because most of its members are developed nations like America and European nations. So they may interfere in the internal affairs and taking political advantages of the cash-strapped countries.