Here is Question No. 1 a part of our series on UPSC Prelims 2022.
Q1. “Rapid Financing Instrument” and “Rapid Credit Facility” are related to the provisions of lending by which one of the following?
a) Asian Development Bank
b) International Monetary Fund
c) United Nations Environment Programme Finance Initiative
d) World Bank
Answer (b)
- “Rapid Financing Instrument” and “Rapid Credit Facility’’ are initiatives of the IMF.
- The Rapid Financing Instrument (RFI): The RFI was created as part of a broader reform to make the IMF’s financial support more flexible to address the diverse needs of member countries. It provides rapid and low-access financial assistance to any qualifying member country facing urgent balance of payments needs that, if not addressed, would result in an immediate and severe economic disruption. It can provide support to meet a broad range of needs, including those arising from commodity price shocks, natural disasters, conflict and postconflict situations, emergencies resulting from fragility, and food shocks. Like the RCF, the RFI is designed for situations where a full-fledged economic program is not necessary because the need is transitory and limited in nature, or not feasible because a country’s policy design or implementation capacity is limited.
- The Rapid Credit Facility (RCF): The RCF is available to PRGT-eligible member countries that face an urgent balance of payments. The RCF is designed for situations where a full-fledged economic program is either not necessary because of the transitory and limited nature of the shock, or not feasible because of capacity constraints or domestic fragilities. For higher-income countries that are non-PRGT eligible, a similar Rapid Financing Instrument (RFI) is available. It provides concessional, rapid, and low-access financial assistance to qualifying LICs facing an urgent balance of payments need, without ex-post conditionality.
- Additional Info:
- There are three windows under the RFI: Regular window: for urgent BoP needs caused by a wide range of sources including domestic instability, exogenous shocks, and fragility.
- Large Natural Disaster window: for urgent BoP needs arising from natural disasters where damage is assessed to be equivalent to or exceeds 20 percent of the member’s GDP.
- Food Shock Window: for urgent BoP needs due to acute food insecurity, a sharp increase in the food or fertilizer import bill, or a shock to cereal exports.
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