Among the various objectives of the International Monetary Fund (IMF), one that stands out is the organization’s resolve to help governments in need of financial assistance. In view of this, the IMF has announced on Wednesday (July 26) that it will soon introduce a new tool that will play a vital role in addressing a government’s financial needs. However, instead of providing loans in form of cash, the IMF has decided to use a new tool that would act as a housekeeping seal of approval for any reform program of a government.
Previously, the financial institution used to provide cheap loans to governments in the vortex of financial crisis. Through this ‘seal of approval’, governments will have access to other sources of finance, mainly from bond markets and banks. The organization believes that through this new tool, governments will be able to knock at other financial institutions’ doors, including private and official creditors and donors.
The tool will also act as a declaration of commitment of a government to introduce much-needed reforms in various segments. This kind of endorsement would help governments to increase their financing options. The revival of this rarely-used tool only took place a week ago when the IMF and Greece signed a one-year loan agreement. After the signing of the agreement, the IMF didn’t follow the usual regime of disbursing funds. Under this new mechanism, the funds will not be disbursed unless a country, in this case Greece, manages to receive significant debt relief.
The New Tool and Pakistani Market
For Pakistani market, this move is well-suited. Cash embezzlement, money laundering and rampant corruption have trampled every institution. Without disbursing funds, requiring a well-thought-out policy to commit to reforms is a good step taken by the IMF, which is even more beneficial for Pakistan. It is hoped that through this tool, the country will able to manage its loan payments more efficiently.