Economics · International Financial Institutions
A small island nation faces severe structural imbalances, total loss of foreign exchange reserves, and debt sustainability failure. While considering an IMF Rapid Financing Instrument (RFI), IMF staff advises that an Extended Fund Facility (EFF) is required instead. Why is the EFF recommended over the RFI in this scenario?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1There is no difference between the two; the IMF only recommends the EFF because it carries a higher administrative fee.
- 2The RFI requires the country to surrender its gold reserves to the IMF while the EFF allows the country to print its own SDRs.
- 3The EFF allows for a longer program duration and repayment period which is essential for implementing structural reforms and achieving debt sustainability.✓
- 4The RFI is only for developed countries while the EFF is a mandatory program for island nations.
Correct answer
The EFF allows for a longer program duration and repayment period which is essential for implementing structural reforms and achieving debt sustainability.
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