CDS (II) 2022 General Knowledge · Question 75 of 120

Correct — B, International Monetary Fund. The Extended Fund Facility is one of the IMF's lending windows, used when a country's balance-of-payments trouble is not a passing shortage of foreign exchange but a structural problem that will take years of reform to fix. It comes with conditions written into the programme, and those conditions are usually what puts it in the news. Sri Lanka's IMF Extended Fund Facility of 2022 to 2024 is the case an Indian candidate would have been reading about: it required value-added tax to rise from 8 per cent to 18 per cent and income tax to 30 per cent, with the aim of lifting the tax-to-GDP ratio from 8.1 per cent in 2021 to 15 per cent by 2025. That mixture of money plus a reform programme is the mark of the Fund, not of a development agency.

• (a)International Fund for Agricultural Development — IFAD is the United Nations agency that finances rural and agricultural development — smallholder farming, rural finance, irrigation. It lends for projects in the countryside, not against a country's balance of payments.
• (c)International Bank for Reconstruction and Development — The IBRD is the original arm of the World Bank and lends to governments for development projects and programmes over the long run. Short-to-medium-term external payments crises are the Fund's business, not the Bank's — this is the standard division of labour between the two Bretton Woods institutions.
• (d)United Nations Development Programme — UNDP works through grants and technical assistance and is best known to candidates for the Human Development Report. It runs no lending facility of this kind and takes no macroeconomic conditions from borrowers.

The IMF and the World Bank were both born at Bretton Woods in 1944 and were given different jobs. The Fund watches exchange rates and external payments and lends to members in balance-of-payments difficulty; the Bank lends for development. Within the Fund, different windows suit different problems, and the Extended Fund Facility is the medium-term one — designed for economies whose payments problem is rooted in the structure of the economy itself, so the programme runs over years and carries reform commitments rather than only a cash disbursement.

The stem gives you two clues and both point the same way. 'Assists a country' rules out an agency that funds projects rather than governments in difficulty, and 'often talked about in news' points at the crisis reporting of 2022, when Sri Lanka's default and Pakistan's foreign-exchange squeeze filled Indian front pages. One honest limit is worth stating: the year the facility was created and its exact repayment schedule are not asserted on this card because they could not be checked against an accessible IMF page. What is documented — and enough to answer — is that the EFF is an IMF instrument and that a live example ran in Sri Lanka from 2022 to 2024.

• The Extended Fund Facility is an IMF lending instrument, not a World Bank or United Nations one.
• It is used for balance-of-payments problems caused by structural weaknesses, so the arrangement runs over years and carries reform conditions.
• Sri Lanka's IMF Extended Fund Facility covered 2022 to 2024.
• That programme required value-added tax to go from 8 per cent to 18 per cent and income tax to 30 per cent.
• Its stated target was to raise Sri Lanka's tax-to-GDP ratio from 8.1 per cent in 2021 to 15 per cent by 2025.

• Reading 'Fund' in a name as proof of an IMF connection; the International Fund for Agricultural Development is a United Nations body.
• Assigning a payments crisis to the World Bank because both institutions lend to governments.
• Assuming the IMF can lend to any country. It lends to members.

Either as a name-the-institution item like this one, or as a which-organisation-publishes-what question built around the same four bodies.

• practice — not a real PYQ

  Which one of the following institutions publishes the World Economic Outlook?

  • (a)The World Bank
  • (b)The International Monetary Fund
  • (c)The World Economic Forum
  • (d)The United Nations Development Programme

  Answer(b) The International Monetary Fund — the World Economic Outlook is the Fund's flagship assessment of the global economy.

• practice — not a real PYQ

  The International Bank for Reconstruction and Development is an arm of which one of the following?

  • (a)The World Bank Group
  • (b)The International Monetary Fund
  • (c)The Asian Development Bank
  • (d)The Bank for International Settlements

  Answer(a) The World Bank Group — the IBRD is its original institution, created at Bretton Woods in 1944.