The international monetary fund (IMF) is an important institution on the global economic platform. Read here to know more about it.
The World Economic Outlook 2022 by IMF has been published and cut its forecast for India’s Gross Domestic Product (GDP) growth in FY 2022-23 to 8.2%, making it the fastest-growing major economy in the world, almost twice faster than China’s 4.4 %.
The war in Ukraine has triggered a costly humanitarian crisis that demands a peaceful resolution. At the same time, economic damage from the conflict will contribute to a significant slowdown in global growth in 2022 and add to inflation. Fuel and food prices have increased rapidly, hitting vulnerable populations in low-income countries hardest.
International Monetary Fund (IMF)
IMF is an international financial organization established to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.
44 founding member countries sought to build a framework for international economic cooperation. Today, its membership embraces 190 countries, with staff drawn from 150 nations.
1944: The IMF was planned as a part of the Bretton Woods exchange system along with the World Bank.
IMF and World Bank are together known as the Bretton Woods twins.
It was set in the aftermath of World War II when the global economic scenario collapsed and countries sharply raised barriers to trade in an attempt to improve their failing economies.
The IMF is governed by and accountable to the 189 countries that make up its near-global membership. It has headquarters in Washington D.C.
India joined on 27th December 1945.
The International Monetary Fund (IMF) has the primary purpose of ensuring the stability of the international monetary system, the system of exchange rates, and international payments that enables countries to transact with each other.
The Bretton Woods exchange rate system collapsed in 1971 when the United States government suspended the convertibility of the US$ (and dollar reserves held by other governments) into gold. This is known as the Nixon Shock.
The IMF then promoted the floating exchange rates system which is in place until today.
1973: During the oil crisis, IMF estimated that the foreign debts of 100 oil-importing developing countries increased by 150% between 1973 and 1977, complicated further by a worldwide shift to floating exchange rates. IMF administered a new lending program from 1974 to 1976 called the Oil Facility.
1991: After the collapse of the Soviet Union, the IMF played a central role in helping the countries of the former Soviet bloc transition from central planning to market-driven economies.
1998-2002: The IMF provided lending packages and bailouts to several countries going through economic crises during this period.
2008: IMF undertook major initiatives to strengthen surveillance to respond to a more globalized and interconnected world during the global economic crisis.
Organization of International Monetary Fund (IMF):
At the top of its organizational structure is the Board of Governors. The day-to-day work of the IMF is overseen by its 24-member Executive Board, which represents the entire membership and is supported by IMF staff.
The Managing Director is the head of the IMF staff and Chair of the Executive Board. She/he is assisted by four Deputy Managing Directors.
Functions of IMF:
Lending: The IMF provides loans—including emergency loans—to member countries experiencing actual or potential balance of payments problems. The aim is to help them rebuild their international reserves, stabilize their currencies, continue paying for imports, and restore conditions for strong economic growth while correcting underlying problems.
Surveillance: The IMF monitors the international monetary system and global economic developments to identify risks and recommend policies for growth and financial stability. The Fund also undertakes a regular health check of the economic and financial policies of its 190 member countries. In addition, the IMF identifies possible risks to the economic stability of its member countries and advises their governments on possible policy adjustments.
Capacity development: The IMF provides technical assistance and training to governments, including central banks, finance ministries, revenue administrations, and financial sector supervisory agencies. These capacity development efforts are centered on the IMF’s core areas of expertise ranging from taxation through central bank operations to the reporting of macroeconomic data. Such training also helps countries tackle cross-cutting issues, such as income inequality, gender equality, corruption, and climate change.
Reports by IMF:
Global Financial Stability Report
- GFSR is a semi-annual report by the IMF that assesses the stability of global financial markets and emerging-market financing. It is released twice per year, in April and October.
World Economic Outlook
- It is a survey by the IMF that is usually published twice a year in April and October.
- It analyzes and predicts global economic developments
- In response to the growing demand for more frequent forecast updates, the WEO Update is published in January and July, and between the two main WEO publications are released usually in April and October.
Key points from World economic outlook 2022
Global growth is projected to slow from an estimated 6.1 percent in 2021 to 3.6 percent in 2022 and 2023. This is 0.8 and 0.2 percentage points lower for 2022 and 2023 than projected in January.
Beyond 2023, global growth is forecast to decline to about 3.3 percent over the medium term.
It has also lowered India’s growth projection by 0.8 % points for 2022-23 from its previous forecast (9%) for the same period in 2021.
- In 2021, India registered a growth rate of 8.9 %.
- In 2023-24, India is estimated to grow at 6.9 %.
International Monetary Fund (IMF) estimates India’s current account deficit to widen to 3.1% in FY 2022-23 from 1.6% in FY 2021-22 due to rising import bills and fuel prices.
Also read: Global Financial Innovation Network (GFIN)
World Economic Outlook Update (January 2022):
- Global growth is expected to moderate from 5.9 in 2021 to 4.4 percent in 2022—half a percentage point lower for 2022 than in the October World Economic Outlook (WEO), largely reflecting forecast markdowns in the two largest economies.
- A revised assumption removing the Build Back Better fiscal policy package from the baseline, earlier withdrawal of monetary accommodation, and continued supply shortages produced a downward 1.2 percentage-point revision for the United States.
- In China, pandemic-induced disruptions related to the zero-tolerance COVID-19 policy and protracted financial stress among property developers have induced a 0.8 percentage-point downgrade.
- Global growth is expected to slow to 3.8 percent in 2023.
Recommendations by the International Monetary Fund (IMF)
Multilateral efforts to respond to the humanitarian crisis, prevent further economic fragmentation, maintain global liquidity, manage debt distress, tackle climate change, and end the pandemic are essential.
Monetary authorities should carefully monitor the pass-through of rising global prices to domestic inflation expectations to calibrate their responses.
The International Monetary Fund (IMF) report backed targeted income support by governments to alleviate stress on household budgets in countries facing large price increases.
Previous year question
Q. Global Financial Stability Report is prepared by the (2016)
(a) European Central Bank
(b) International Monetary Fund
(c) International Bank for Reconstruction and Development
(d) Organization for Economic Cooperation and Development