In order to help the member countries to correct disequilibrium in their balance of payments, the IMF operates various borrowing facilities.
(i) Basic Credit Facility:
The IMF provides financial assistance to its member nations to overcome their temporary difficulties relating to balance of payments. A member nation can purchase from the Fund other currencies of SDRs. in exchange for its own currency, to finance payment deficits.
The loan is repaid when the member repurchases its own currency with other currencies or SDRs. A member can unconditionally borrow from the Fund in a year equal to 25% of its quota.
This unconditional borrowing right is called the reserve tranche. It addition, four tranches (each equal to 25% of the quota) are available to a country.
Thus, a member country has the basic credit facility of 5 tranches (i.e., 125% of its quota) from the Fund. In other words, the borrowings from the IMF should not increase the currency of a member country with the Fund more than 200% of its quota.
(ii) Extended Fund Facility:
In September 1974, the IMF started extended fund facility to assist the member countries with sever balance of payments problem for long periods.
Under this arrangement, the IMF provides additional borrowing facility up to 140% of the member’s quota, over and above the basic credit facility.
The extended facility is limited for a period up to 3 years and the rate of interest is low, i.e., from 4% to 6.5%.
(iii) Compensatory Financing Facility:
In 1963, IMF established compensatory financing facility to provide additional financial assistance to the member countries, particularly primary producing countries facing shortfall in export earnings.
In 1981, the coverage of the compensatory financing facility was extended to payment problem caused by the fluctuations in the cost of cereal inputs.
(iv) Buffer Stock Facility:
The buffer stock financing facility was started in 1969. The purpose of this scheme was to help the primary producing countries to finance contributions to buffer stock arrangements for the stabilisation of primary product prices.
(v) Supplementary Financing Facility:
Under the supplementary financing facility, the IMF makes temporary arrangements to provide supplementary financial assistance to member countries facing payments problems relating to their present quota sizes. The IMF has borrowing agreements with 14 lenders to provide different currencies for supplementary financing.
(vi) Special Oil Facility:
In 1974, the IMF established a temporary credit facility called Special Facility to extend credit to countries with payments difficulties caused by oil price hikes. The facility was terminated in 1976.
(vii) Trust Fund:
The IMF has sold gold in public auctions at prices much above the price prevailing in the market. Part of the profits so earned has been used to establish a Trust Fund in 1976 for making conditional loans to the less-developed countries with payments problems.
(viii) Structural Adjustment Facility:
The IMF established in March 1986 Structural Adjustment Facility (SAF) to provide additional balance of payments assistance on concessional terms to the poorer member countries.
In December 1987, the Enhanced Structural Adjustment Facility (ESAF) was set up to augment the availability of concessional resources to low income countries.
The purpose of SAF and ESAF is to help the poor countries to undertake strong macroeconomic and structural programmes to improve their balance of payments positions and promote economic growth.