Extended Fund Facility (EFF)

Prelims: Current events of national and international importance| Economic and Social Development

Why in news?

Recently the Executive Board of the International Monetary Fund (IMF) decided to allow for “an immediate disbursement” of $1 billion (Rs 8,500 crore) to Pakistan as part of IMF’s Extended Fund Facility (EFF) to Pakistan.

• Extended Fund Facility – It is a financial assistance program provided by the International Monetary Fund that is available to all IMF member countries.
• Objective - It is designed specifically for countries facing "serious medium-term balance of payments problems".
• It means that the countries that are unable to pay for imported goods and services due to structural economic weaknesses.
• Loan structure – The disbursement duration of the EFF is usually 3 years and it can be extended up to 4 years in special cases needing deeper structural reforms.
• IMF typically allows for repayment over a period of 4.5 to 10 years.
• It provides assistance only in the form of loans, not grants or aid.
• It is called "extended" because recipients need more time to implement structural reforms.
• Accountability framework – IMF regularly reviews the progress of the country throughout the disbursement period.
• The progress evaluations determine eligibility for subsequent disbursements.
• It also includes formal review processes to monitor progress on economic stabilization.
• It focuses on fundamental structural weaknesses such as
  • Inadequate physical infrastructure
  • Insufficiently educated workforce
  • Excessive government borrowing beyond repayment capacity
  • Underdeveloped financial and banking systems
• Pakistan's EFF– EFF is extended to Pakistan as the country has been on the brink of bankruptcy with its total GDP has been stagnant over the past decade.
• It is currently under a 37-month EFF approved on September 2024 with total approved disbursement of $7 billion.
  • Latest tranche - $1 billion on May 9, 2025

Reference

The Indian Express| IMF loan to Pakistan