Licchavi Lyceum


Licchavi Lyceum

Rapid Credit Facility : [UPSC Note] 2023

Rapid Credit Facility is a financing mechanism offered by the International Monetary Fund (IMF) to provide immediate financial assistance to member countries facing urgent balance of payments needs, typically as a result of sudden external shocks such as natural disasters, pandemics, or other economic crises.
Rapid Credit Facility
Rapid Credit Facility

What is Rapid Credit Facility?

Rapid Credit Facility is designed to provide quick disbursement of funds, with a streamlined approval process that can be completed in a matter of weeks, rather than the months that are typical of other IMF lending programs. The funds provided through the RCF are intended to help countries meet their urgent balance of payments needs, such as covering external debt service obligations or financing essential imports.

Unlike other IMF lending programs, the RCF does not require the implementation of a full-fledged economic reform program or policy conditionality. However, countries receiving RCF funds are expected to maintain macroeconomic stability and pursue sound policies to ensure long-term economic sustainability.

The COVID-19 pandemic has had a significant impact on the global economy. Countries have implemented measures to mitigate the impact of the pandemic on their economies. One such measure is the Rapid Credit Facility (RCF), which is a loan program offered by the International Monetary Fund (IMF) to help countries cope with the economic fallout from the pandemic.

Who is eligible for the RCF?

The RCF is available to low-income countries that have a balance-of-payments need due to an exogenous shock, such as the COVID-19 pandemic. Countries that are eligible for the RCF must have a per capita income below $1,175, and they must be experiencing an urgent balance-of-payments need due to an external shock.

What are the terms of the RCF?

The RCF provides immediate financial assistance to eligible countries in the form of a loan. The loan is provided without conditions, meaning that the borrowing country is not required to implement any policy reforms or establish a track record of good policy performance. The loan has a maximum maturity of 10 years, and the interest rate is set at a concessional rate of zero percent. The borrowing country is required to repay the loan within five and a half to 10 years, depending on the terms of the loan.

Q. “Rapid Financing Instrument” and “Rapid Credit Facility” are related to the provisions of lending by which one of the following? (UPSC Prelims 2022)

(a) Asian Development Bank

(b) International Monetary Fund

(c) United Nations Environment Programme Finance Initiative

(d) World Bank

Ans: (b)

Solution: The Rapid Credit Facility by IMF is offering concessional loans to help with the balance of payments needs of low-income countries (LICs).

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