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  • Z-Morh tunnel to be ready in April

    tunnel

    The crucial Z-Morh tunnel that connects Gagangir and Sonamarg on the Srinagar-Leh highway will be inaugurated next month in April.

    What is Z-Morh tunnel?

    • Z-Morh tunnel, also known as the Zoji-Morh Tunnel, is an under-construction tunnel located in the Indian state of Jammu and Kashmir.
    • The tunnel is being constructed at an elevation of 11,578 feet and is expected to provide all-weather connectivity to the Kashmir Valley.

    Location

    • The Z-Morh tunnel is located on National Highway 1D, which is the only road that connects the Kashmir Valley to the rest of India.
    • The tunnel is being constructed in the Zoji-Morh region, which is a high-altitude mountain pass located on the Srinagar-Leh Highway.

    It’s Construction

    • The Z-Morh tunnel is being constructed at a length of 6.5 km and is expected to be completed at a cost of around Rs. 2,000 crore.
    • The tunnel will have a two-lane carriageway and will be constructed using the latest tunnelling technology.
    • The project is being executed by the National Highways and Infrastructure Development Corporation Limited (NHIDCL).

    Significance

    • The tunnel is expected to provide all-weather connectivity to the Kashmir Valley, which is currently cut off from the rest of India for several months during the winter season due to heavy snowfall and avalanches.
    • The tunnel will also reduce the travel time between Srinagar and Leh by around four hours, as it will eliminate the need to cross the Zoji-Morh pass.

     

  • Public Policy Education: Essential For Developing Effective Policies

    Central Idea

    • Government policies play a crucial role in determining the future of a country. They not only impact economic growth and public welfare but also improve the ease of living for citizens. Unfortunately, there is a lack of interest in public policy education in India, with only a small percentage of policymakers having formal education in public policy and administration.

    Public policy education

    • Public policy education refers to the study and teaching of the principles, theories, and methods involved in the development, implementation, and evaluation of policies that address societal issues.
    • This field of education aims to equip students with the knowledge and skills necessary to analyze, create, and manage public policies effectively.

    How the government policies, economic growth, and public welfare are closely interconnected?

    • Government policies: Governments create and implement policies to guide economic activities, maintain social order, and promote the welfare of their citizens. These policies cover a wide range of areas, such as fiscal and monetary policy, trade policy, education, healthcare, social security, and infrastructure development. The effectiveness of these policies can have a direct impact on economic growth and public welfare.
    • Economic growth: Economic growth is the increase in a country’s output of goods and services over time, usually measured by the growth rate of gross domestic product (GDP). A growing economy typically leads to higher employment, increased income, and improved living standards for citizens. Government policies play a crucial role in stimulating or hindering economic growth by influencing factors such as investment, consumption, trade, and innovation.
    • Public welfare: Public welfare refers to the overall well-being of a society, encompassing aspects such as income distribution, access to essential services, health, education, and environmental quality. Government policies can significantly impact public welfare by determining the allocation of resources, setting priorities, and providing social safety nets.

    Paucity of Programs

    • As per the All-India Council for Technical Education, there are 3,182 institutions with an approved intake of 4.22 lakh in business management programs, but only about 130 universities that offer public administration programs and only 29 institutes that offer public policy programs.
    • The batch size of public policy courses is 20-60, and there are few jobs available for people pursuing such courses, which disincentivizes educational institutions and students from choosing public management courses.

    Lack of Exposure to Public Management

    • Most civil servants undergo departmental induction training programs that focus on the role they play in their department and not much on how to make good public policies.
    • Consequently, very few civil servants have exposure to public management before joining service, which is critical for developing effective policies.

    Suggestions to boost public policy education in India

    1. Public Management as a Compulsory Subject in UPSC:
    • Public management should be a compulsory subject for the UPSC civil service examination, either as a substitute for one optional subject or an additional paper. This will incentivize universities and private institutions to offer public policy education, research, and case studies at the graduate or post-graduate level, leading to a major boost in public policy education.
    • Additionally, civil servants who join government would have formal education in public management before they enter service, and even those who do not make it to government jobs would develop better understanding and sensitivity towards complexities involved in public management, making them better citizens and effective private sector managers.
    1. Larger Component of Public Policy in Induction Training: Existing training institutions of the government should have a larger component of public policy as part of their induction training. Moreover, a case study bank for training should also be established.
    2. Specialized Positions of Public Policy Analysts: The government can create certain specialized positions of public policy analysts to be picked up from the market directly, thereby creating new job avenues for the graduates of public policy programs.

    Conclusion

    • The lack of formal education in public management has led to governance lagging behind private sector management in terms of efficiency and effectiveness. Public policy education is essential for developing effective policies that spur economic growth, public welfare, and improve ease of living for citizens.

    Mains Question

    Q. What is public policy education, and why is it important for policymakers in India to have formal education in public policy and administration? Suggest measures to boost public policy education in India.

  • India’s WTO Challenge on MSP Programs for Food Grain

    wto

    Central idea: India has been criticized at the World Trade Organization (WTO) for not adequately addressing questions raised by members regarding its Minimum Support Price (MSP) programs for food grain, particularly rice.

    Minimum Support Price (MSP)

    • MSP is the price at which the government buys crops from farmers to support them against any sharp fall in farm prices.
    • It is announced by the Government of India for 23 crops ahead of each sowing season based on the recommendations of the Commission for Agricultural Costs and Prices (CACP).
    • It is an important tool to protect farmers from any sharp fall in farm prices.

     Genesis of the row

    • WTO members such as the US, Australia, Canada, the EU, and Thailand have alleged that India did not provide sufficient responses during consultations.
    • The MSP programs have breached prescribed subsidy limits and are under scrutiny at the WTO argued these countries.
    • With this, India became the first country to invoke the Bali ‘peace clause’ to justify exceeding its 10% ceiling for rice support in 2018-2019 and 2019-2020.

    What is ‘Bali Peace Clause’?

    • India’s minimum support price (MSP) falls under the amber box subsidies category.
    • India has exceeded its limits for amber box subsidies for rice for two consecutive years, which is why it has been challenged at the WTO.
    • The Bali ‘peace clause’ allows developing countries to exceed their 10% ceiling without facing legal action by other members.
    • However, it is subject to numerous conditions, such as not distorting global trade and not affecting food security of other members.
    • India’s MSP programs are subject to the ‘peace clause’, but some WTO members have accused India of habitually not including all required information in its notifications.

    Allegations of Inadequate Reporting by India

    • WTO members have been accusing India of not reporting all public stockholding programs under the ‘peace clause’.
    • Some members have pointed out that India also lacks an adequate monitoring mechanism to ensure that no stocks are exported.
    • India, on the other hand, argues that it is not obligated to notify any public stockholding programs other than for the crop where the subsidy limits were breached.

    Impact on India’s MSP Programs

    • The criticism from WTO members could have an impact on India’s MSP programs for food grain, particularly rice.
    • The conditions set under the ‘peace clause’ could limit India’s ability to exceed the subsidy limits and support its farmers.
    • India may have to provide more detailed notifications and monitoring mechanisms to address the concerns of other members and ensure compliance with WTO regulations.

    Why is India defending its stance on MSPs?

    • India faces several challenges in the agricultural sector, including climate change, soil degradation, and water scarcity.
    • The country also has to deal with farmers’ distress due to low prices for their produce, which is why the MSP program was introduced in the first place.
    • The challenge posed by the WTO to the MSP program could further exacerbate the problems faced by Indian farmers.

    Back2Basics: WTO and its Subsidies Boxes

    The World Trade Organization (WTO) is an intergovernmental organization that is responsible for regulating international trade between nations.

    • Establishment: It was established on January 1, 1995, and currently has 164 member countries.
    • Objective: To ensure that trade flows as smoothly, predictably, and freely as possible.
    • Frameworks: Negotiating and formalizing trade agreements, resolving trade disputes between member countries, and monitoring national trade policies.
    • Working principles: Non-discrimination, transparency, and fairness in international trade.

    The WTO has three types of subsidy boxes – green, blue, and amber. Each box represents a different level of trade-distorting subsidies.

    1. Green box subsidies: These subsidies are considered non-trade-distorting and are allowed under WTO rules. They include measures such as research, disease control, and infrastructure development.
    2. Blue box subsidies: These subsidies are considered less trade-distorting than amber box subsidies but can still distort trade to some extent. They include measures such as direct payments to farmers to reduce production, provided that certain conditions are met, such as the use of fixed areas or yields.
    3. Amber box subsidies: These subsidies are considered the most trade-distorting and are subject to reduction commitments under the WTO Agreement on Agriculture. They include measures such as price support, input subsidies, and direct payments that are not subject to certain conditions.

     

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  • Prices of Essential Medicines set to hike

    medicine

    Prices of 384 essential drugs and over 1,000 formulations are set to see a hike of over 11%, due to a sharp rise in the Wholesale Price Index (WPI).

    Implications for customers

    • Annual hikes in the prices of drugs listed in the National List of Essential Medicines (NLEM) are based on the WPI.
    • The price surge will mean that consumers have to pay more for routine and essential drugs, including painkillers, anti-infection drugs, cardiac drugs, and antibiotics.

    What are Essential Medicines?

    • As per the World Health Organisation (WHO), Essential Medicines are those that satisfy the priority healthcare needs of the population.
    • Ministry of Health and Family Welfare hence prepared and released the first National List of Essential Medicines (NLEM) of India in 1996 consisting of 279 medicines.
    • The list is made with consideration to disease prevalence, efficacy, safety and comparative cost-effectiveness of the medicines.
    • Such medicines are intended to be available in adequate amounts, in appropriate dosage forms and strengths with assured quality.
    • They should be available in such a way that an individual or community can afford.

    NLEM in India

    • Drugs listed under NLEM — also known as scheduled drugs — will be cheaper because the National Pharmaceutical Pricing Authority (NPPA) caps medicine prices and changes only based on wholesale price index-based inflation.
    • The list includes anti-infectives medicines to treat diabetes such as insulin — HIV, tuberculosis, cancer, contraceptives, hormonal medicines and anaesthetics.
    • They account for 17-18 per cent of the estimated Rs 1.6-trillion domestic pharmaceutical market.
    • Companies selling non-scheduled drugs can hike prices by up to 10 per cent every year.
    • Typically, once NLEM is released, the department of pharmaceuticals under the ministry of chemicals and fertilisers adds them in the Drug Price Control Order, after which NPPA fixes the price.

    Who regulates Drugs prices?

    • The NPPA was set up in 1997 to fix/revise prices of controlled bulk drugs and formulations and to enforce price and availability of the medicines in the country, under the Drugs (Prices Control) Order, 1995-2013.
    • Its mandate is:
    1. To implement and enforce the provisions of the DPCO in accordance with the powers delegated to it
    2. To deal with all legal matters arising out of the decisions of the NPPA
    3. To monitor the availability of drugs, identify shortages and to take remedial steps
    • The NPPA is also mandated to collect/maintain data on production, exports and imports, market share of individual companies, profitability of companies etc., for bulk drugs and formulations and undertake and/ or sponsor relevant studies in respect of pricing of drugs/ pharmaceuticals.

    How does the pricing mechanism work?

    • Prices of Scheduled Drugs are allowed an increase each year by the drug regulator in line with the Wholesale Price Index (WPI) and the annual change is controlled and rarely crosses 5%.
    • But the pharmaceutical players pointed out that over the past few years, input costs have flared up.
    • The hike has been a long-standing demand by the pharma industry lobby.
    • All medicines under the NLEM are under price regulation.

     

    Try this MCQ

    Q. Which of the following is not a mandate of the National Pharmaceutical Pricing Authority (NPPA)?

    A) Fixing and revising prices of controlled bulk drugs and formulations

    B) Enforcing price and availability of medicines in the country

    C) Monitoring the availability of drugs and taking remedial steps

    D) Regulating the import and export of pharmaceutical products

     

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  • What is the Wildlife Protection Act, 1972?

    wild

    A person in UP was booked under the Wildlife Protection Act, 1972, for “illegally” keeping and nursing an injured Sarus crane (Grus Antigone) he found in his village.

    About Sarus

    • The Sarus crane is usually found in wetlands and is the state bird of Uttar Pradesh.
    • Standing at 152-156 centimetres, it is the world’s tallest flying bird.

    What is Wildlife (Protection) Act, of 1972?

    • WPA provides for the protection of the country’s wild animals, birds and plant species, in order to ensure environmental and ecological security.
    • It provides for the protection of a listed species of animals, birds and plants, and also for the establishment of a network of ecologically-important protected areas in the country.
    • It provides for various types of protected areas such as Wildlife Sanctuaries, National Parks etc.

    There are six schedules provided in the WPA for the protection of wildlife species which can be concisely summarized as under:

    Schedule I: These species need rigorous protection and therefore, the harshest penalties for violation of the law are for species under this Schedule.
    Schedule II: Animals under this list are accorded high protection. They cannot be hunted except under threat to human life.
    Schedule III & IV: This list is for species that are not endangered. This includes protected species but the penalty for any violation is less compared to the first two schedules.
    Schedule V: This schedule contains animals which can be hunted.
    Schedule VI: This list contains plants that are forbidden from cultivation.

     

    What is the law on animals and birds under Schedule IV?

    • Species mentioned under Schedules III and IV relate to the prohibition on dealings in trophy and animal articles without a license, purchase of animals by a licensee, and restriction on transportation of wildlife.
    • Section 48 of the Act specifically states that any wild animal or animal article can be transported only after obtaining permission from the Chief Wildlife Warden or any other officer authorised by the state.
    • Section 44 provides for issuing licenses to taxidermists, eating houses (hotels or restaurants), and dealers in animal articles, preserved animal parts or trophies, uncured trophies (whole or any unpreserved part of an animal), captive animals, and snake venom of such species.

     

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  • Type 1 and Type 2 Diabetes among Children

    diabetes

    The National Commission for Protection of Child Rights (NCPCR) has written to Education Boards of all States/UTs, stating schools must ensure proper care/facilities for children with Type 1 diabetes (T1D).

    What is Diabetes?

    • Diabetes is a chronic medical condition that occurs when the body cannot regulate blood sugar levels properly.
    • Blood sugar, also known as blood glucose, is the main source of energy for the body’s cells.
    • Insulin, a hormone produced by the pancreas, helps the body use and store glucose from food.
    • In diabetes, the body either does not produce enough insulin or cannot use the insulin it produces effectively, resulting in high blood sugar levels.
    • Over time, high blood sugar levels can cause serious health problems, such as damage to the heart, blood vessels, eyes, kidneys, and nerves.

    Types of Diabetes

    There are two main types of diabetes: Type 1 and Type 2.

    • Type 1 diabetes: It is an autoimmune disease in which the immune system attacks and destroys insulin-producing cells in the pancreas, resulting in a lack of insulin. This type of diabetes is typically diagnosed in children and young adults, although it can occur at any age. It requires insulin injections or pump therapy for survival.
    • Type 2 diabetes: It is a metabolic disorder in which the body becomes resistant to the effects of insulin or doesn’t produce enough insulin to maintain normal glucose levels. This type of diabetes is often associated with lifestyle factors such as obesity, physical inactivity, and poor diet. It is typically diagnosed in adults, but it is becoming increasingly common in children and adolescents as well. Treatment for Type 2 diabetes may include lifestyle changes, oral medications, or insulin therapy.

    Menace of diabetes in India

    • According to data from the International Diabetes Federation Atlas 2021, India has the world’s highest number of children and adolescents living with Type I Diabetes Mellitus (TIDM).
    • There are over 2.4 lakh TID patients in the Southeast Asia region.

    Measures to mitigate TID impact on students

    • CBSE circular in 2017 allowed students with T1D in Classes X and XII to carry certain eatables to board exam hall to avoid low sugar episodes.
    • They are permitted to carry medicines, snacks, water, a glucometer, and testing strips.
    • NCPCR suggests states allow students to use smartphones to monitor sugar levels.
    • Tamil Nadu has been providing free insulin to children with T1D since 1988.

    Back2Basics: National Commission for Protection of Child Rights (NCPCR)

    • NCPCR is a statutory body established in India under the Commissions for Protection of Child Rights Act, 2005.
    • Its objective is to protect, promote and defend the rights of children in India.
    • It functions as a watchdog to prevent child rights violations, as well as to take action against those responsible for such violations.
    • The NCPCR also advocates for the implementation of laws, policies and programs aimed at promoting child welfare and development.

     

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  • What is Bilkis Bano Case?

    bilkis bano

    The Supreme Court has indicated it will primarily focus on the question of Gujarat’s jurisdiction to prematurely release 11 men sentenced to life for the gang rape of Bilkis Bano and the murder of her family during the 2002 riots.

    Central idea

    • The Bilkis Bano case is a landmark case of gangrape and mass murder that occurred during the 2002 Gujarat riots in India.
    • Bilkis Bano, then a 21-year-old pregnant woman, was raped and her family members were murdered during the riots that followed the Godhra train burning incident.
    • The case was initially left unnoticed, but after persistent efforts by Bano and her supporters, the case was reopened and the perpetrators were brought to justice.

    Initial investigation and cover-up

    • No proper investigation: Despite the gravity of the crime, the initial investigation was not conducted properly.
    • Evidence tampered: The medical examination of Bano was conducted after several days, by which time crucial evidence had been lost.
    • No FIR registered: The police refused to file a First Information Report (FIR) initially, and when they did, they left out crucial details of the incident.

    Reopening of the case

    • Bano and her supporters continued to fight for justice, and in 2004, the case was transferred to the Central Bureau of Investigation (CBI) on the order of the Supreme Court.
    • The CBI conducted a thorough investigation and filed a charge sheet against 19 accused persons, including police officers and doctors who had tried to cover up the crime.
    • In 2008, the trial began in a Mumbai court.

    Conviction and sentencing

    • In 2017, after a long legal battle, a Mumbai court convicted 11 accused persons, including one police officer, for gang rape and murders.
    • The police officer, who was the main accused, was sentenced to life imprisonment, while the others were given seven years’ imprisonment.
    • The court also acquitted seven other accused persons due to lack of evidence.

    Key issue: Release of convicts

    • In February 2021, the Bombay High Court acquitted five of the convicted persons, citing lack of evidence.
    • The court also upheld the life imprisonment of the police officer and reduced the sentence of the other convicts to three years.
    • The convicts were released from prison after serving their sentence.

    What are the laws on remissions?

    • Prisoners are often granted remission of sentences and released on important occasions such as birth and death anniversaries of prominent leaders.
    • The President and the Governors have the power to pardon, suspend, remit, or commute a sentence passed by the courts under Articles 72 and 161 of the Constitution.
    • Under Section 432 of the Code of Criminal Procedure (CrPC), the state governments also have the power to remit sentences as prisons are a state subject.
    • However, the powers of remission of the state government are restricted by Section 433A of the CrPC.
    • It mandates a person serving a life imprisonment sentence for an offence where death is a punishment or where a death sentence has been commuted, cannot be released until they have served at least 14 years in prison.

    Critical reception of the judgement

    • Justice vindicated: Bano and her family members expressed disappointment with the decision of the court to acquit some of the convicts, and they plan to challenge the verdict in the Supreme Court.
    • Communal angle to the release: Bano has been a symbol of courage and determination for survivors of sexual violence in India, and her case has highlighted the need for justice and accountability for crimes committed during communal riots.

    Significance of the case

    • The Bilkis Bano case is significant as it highlights the issue of communal violence in India and the failure of the authorities to provide justice to the victims.
    • The case also underscores the need for the protection of the rights of women and minorities in India.
    • The long legal battle fought by Bano and her supporters shows that justice is possible, but it requires persistence, courage and the support of civil society.

     

     

  • India’s Support for Marine Protected Areas in Antarctica

    marine

    Central idea: India has pledged its continued support for the establishment of two Marine Protected Areas (MPAs) in Antarctica, with the aim of protecting marine life and the ecosystem services that it provides.

    What are Marine Protected Areas?

    • An MPA is a defined region that is managed for the long-term conservation of marine resources, ecosystem services, or cultural heritage.
    • They can be established in national and international waters to preserve the biodiversity of the marine environment.

    Criteria used for MPAs declaration

    The International Union for Conservation of Nature (IUCN) has developed a set of criteria for the identification and management of marine protected areas (MPAs). These criteria include:

    • Representativeness: MPAs should include a range of habitats, ecosystems, and species that are representative of the region.
    • Biological diversity: MPAs should conserve a wide range of biodiversity, including species, habitats, and genetic diversity.
    • Rarity: MPAs should protect rare, unique, or endemic species or habitats.
    • Productivity: MPAs should conserve areas of high productivity, such as spawning and nursery grounds.
    • Resilience: MPAs should protect ecosystems that are able to withstand disturbances and recover from damage.
    • Ecological processes: MPAs should conserve important ecological processes, such as nutrient cycling and migration patterns.
    • Connectivity: MPAs should be connected to other protected areas to allow for the movement of species and genetic material.
    • Cultural and social importance: MPAs should consider the cultural and social importance of the area to local communities.

    MPA in focus: Southern Ocean

    • The Southern Ocean, which encircles Antarctica, covers around 10 per cent of the global ocean and is home to nearly 10,000 unique polar species.
    • The ecosystem is an important source of marine resources, including fish and krill, which support commercial fisheries and provide a food source for larger animals.

    Threats to the Southern Ocean and its marine life

    marine

    • Climate change is affecting the Southern Ocean, altering habitats such as sea ice and the sheltered seafloor under ice shelves that are home to a variety of species.
    • Commercial fishing, particularly for krill (shrimp-like crustacean), is also threatening the ecosystem.

    Need for an MPA in Antarctica

    • The Southern Ocean needs protection to prevent the further impact of climate change and commercial exploitation.
    • A new MPA would help limit human activities, including fishing, mining, and drilling, and help conserve the region’s marine resources and unique biodiversity.

    Existing MPAs in the Southern Ocean

    • The Southern Ocean currently has two MPAs:
    1. In the southern shelf of the South Orkney Islands and
    2. In the Ross Sea
    • These MPAs protect only 5 percent of the ocean, with all types of fishing, other than scientific research, prohibited within the southern shelf of the South Orkney Islands MPA.

    Resistance to proposed MPAs  

    • Proposals to establish MPAs in East Antarctica, the Weddell Sea, and the waters surrounding the Antarctic Peninsula have been met with resistance by China and Russia.
    • The two countries have a different view than the rest of the members of the Commission for the Conservation of Antarctic Marine Living Resources (CCAMLR), which is an intergovernmental body set up in 1982 to conserve Antarctic marine life.

    India’s interest in the commercial exploitation of krill

    • India has expressed interest in commercial exploitation of krill in the region.
    • However, increased harvesting of krill threatens animals that feed on them, including fish, whales, seals, penguins, and other seabirds.

    Contribution of proposed MPAs to the United Nations 30×30 Framework

    • If the proposed MPAs take form in Antarctica, they will contribute to the United Nations 30×30 Framework, which aims to protect 30 percent of the world’s land and sea.
    • This agreement was reached at the 15th Conference of Parties to the Convention on Biological Diversity in 2022.

    Conclusion

    • Most countries have agreed in principle to establish MPAs in Antarctica, and it is expected to be discussed further at the next Antarctic Treaty Consultative Meeting.
    • The establishment of MPAs in Antarctica is crucial to preserving the region’s marine resources and unique biodiversity, and for contributing to the global

     

     

     

  • Mahila Samman Savings Certificate operationalized

    Finance Minister while presenting the Budget 2023 announced a new scheme for women, Mahila Samman Saving Certificate. This scheme has now been operationalized.

    Mahila Samman Saving Certificate

    • It is a one-time new small savings scheme of the government of India announced in the Budget 2023.
    • It will be made available for a two-year period up to March 2025.
    • This will offer deposit facility upto Rs 2 lakh in the name of women or girls for a tenure of 2 years.
    • The deposit facility will offer fixed interest rate of 7.5 per cent with a partial withdrawal option.

    Benefits offered

    • It is a suitable alternative to fixed deposits (FDs) invested in the name of a woman for the short term.
    • The returns are higher than bank FDs and partial withdrawal makes liquidity less of a concern.

    Other details

    • The Scheme will be rolled out through banks and post offices across the country.
    • The taxation structure is yet to be known and the scheme is expected to be available from April 1, 2023.

    How is it different from Sukanya Samriddhi Yojana?

    • SSY is a small deposit scheme of the government of India meant exclusively for a girl child. The scheme is meant to meet the education and marriage expenses of a girl child.
    • The current rate of interest offered by Sukanya Samriddhi Yojana is 7.6%, which is compounded annually.
    • Account can be opened in the name of a girl child till she attains the age of 10 years.
    • The total amount deposited in an account shall not exceed Rs 1,50,000 in a financial year.
    • Sukanya Samriddhi scheme has tax benefits under Section 80C.
    • The account matures after 21 years from the date of opening or on marriage of the girl child under whose name the account is opened, whichever is earlier.

     

     

  • Understanding IMF Bailouts and their drawbacks

    imf

    Central idea: The International Monetary Fund (IMF) last week confirmed a $3 billion bailout plan for Sri Lanka’s struggling economy. However, Pakistan failed to get a penny. Countries seek help from the IMF usually when their economies face a major macroeconomic risk, mostly in the form of a currency crisis.

    International Monetary Fund (IMF)

    • IMF is an international organization that provides loans, technical assistance, and policy advice to its member countries.
    • It was established in 1944 with the goal of promoting international monetary cooperation and exchange rate stability, facilitating balanced economic growth, and reducing poverty around the world.
    • It has 190 member countries, and its headquarters is located in Washington, D.C.
    • Its main function is to provide financial assistance to countries facing economic difficulties, such as the balance of payments problems, currency crises, and high levels of debt.
    • It also provides technical assistance and policy advice to help countries improve their economic policies and institutions, and to promote economic stability and growth.

    Governing of IMF

    • The IMF is governed by its Board of Governors, which consists of one governor and one alternate governor from each member country.
    • The day-to-day operations of the IMF are managed by its Executive Board, which is responsible for making decisions on financial assistance and policy advice.

     

    What is an IMF Bailout?

    • An IMF bailout, also known as an IMF program, is a loan package provided by the International Monetary Fund (IMF) to financially troubled countries.
    • These loan packages come with specific terms and conditions that the borrowing country must meet to access the funds.
    • They typically have a set of conditions that a country must meet to qualify for the loan package.
    • These conditions, also known as “conditionalities,” typically include measures that promote fiscal discipline, monetary stability, and structural reforms to improve the country’s economic competitiveness.

    IMF programs are often seen as a last resort for countries facing financial crises, and they are only granted if a country cannot access capital markets on its own. IMF programs can be classified into three main types:

    1. Stand-by Arrangements: They are short-term lending programs designed to provide financial assistance to countries experiencing short-term balance of payments problems. These programs typically last for one to two years and require countries to implement specific macroeconomic policies to stabilize their economies.
    2. Extended Fund Facility: Such programs are medium-term lending programs designed to help countries with balance of payments difficulties resulting from structural weaknesses. These programs are typically longer-term and come with more extensive policy conditionality, which requires more significant structural reforms to the country’s economy.
    3. Rapid Financing Instrument: It is a loan program designed to provide quick financing to countries facing an urgent balance of payments need. The program is designed to be more flexible than other IMF programs, with fewer conditions and a shorter application process.

    Why do countries seek IMF bailouts?

    • Countries need IMF bailout when their economies face major macroeconomic risks, such as a currency crisis, due to gross mismanagement of the nation’s currency by the central bank under the covert influence of the ruling government.
    • Such currency crises cause a rapid rise in the overall money supply, which causes prices to rise across the economy and the exchange value of the currency to drop.
    • Bad luck such as a decrease in foreign tourists can also contribute to a crisis in a country like Sri Lanka.

    Benefits provided by IMF bailout:

    IMF programs provide several benefits to countries in financial distress. For instance:

    • Access to funding: An IMF bailout provides immediate funding to a country experiencing a financial crisis, allowing it to meet its immediate financial obligations.
    • Credibility push: A bailout can provide credibility to a country’s economic policies, signalling to international investors that the country is taking the necessary steps to restore its economy.
    • Assistance with structural reforms: IMF programs require countries to implement structural reforms that can help address the underlying problems that led to the financial crisis, improving the country’s long-term economic prospects.

    Limitations of an IMF bailout

    • Harsh austerity measures: IMF programs often require countries to implement strict economic policies, which can be unpopular and difficult to implement.
    • Limited resources: The IMF has limited resources, which can limit the amount of assistance it can provide to countries in need.
    • Stigmatization: Bailout can stigmatize a country in the eyes of international investors, signaling that the country is unable to manage its own economy without outside assistance.

    Try this PYQ from CSP 2022

    “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 National Environment Programme Finance Initiative

    (d) Word Bank

     

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