Why a country goes to the IMF and its benefits

Imf 1024x640 International Monetary Fund

Tue, 28 Jun 2022 Source: www.ghanaweb.com

A country will need to go to the International Monetary Fund for aid when it plunges into a dire economic crisis.

The crisis may be of various forms including the mismanagement of economic policies characterized by lavish spending and the inability to generate revenue.

When the balance of trade of an economy runs into a deficit instead of a surplus, the economy suffers from a deficiency of foreign exchange.

Sometimes when natural disasters occur, the economy may need an external helping hand to revive it and get back on track.

When countries face economic challenges, they are no longer able to pay bills like debt payments or public sector salaries, and this causes inflation and the general cost of living in the country to go up.

The IMF was established 70years ago to provide emergency financing and help countries to help stabilize their economies. When countries go to the IMF, it is because they may have run out of lending options.

Private investors and banks may be unwilling to risk giving money to a troubled country and so the IMF provides short-term loans at an interest rate much lower than what is being offered on the market.

It also provides zero-interest loans for poor countries because IMF lending is fast and flexible and this gives breathing room by allowing them to meet their immediate financial needs.

That breathing time gives space for new policies to have an impact.

The IMF helps to tackle issues that resulted in the crisis in the first place whiles protecting the poor and vulnerable IMF restores investor confidence further helping the country to get back on its feet.

Because member countries are known to be following the IMF code of conduct, membership encourages investment and trade, leading to fuller employment. The IMF also provides technical assistance and financial support when the member country needs it.

However, Ghana is currently facing harsh economic conditions that are dwindling investor confidence in the country.

Inflation is at a record high of 27.6% and resulting in the high cost of goods and services in the country.

Meanwhile, the government has made its stance on going to the IMF clear despite various suggestions by economists and analysts that the country needs an IMF programme.


Source: www.ghanaweb.com
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