• UGI USER
  • May 14, 2024
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IMF CAUTIONS MALDIVES ON DEBT DISTRESS; CONSIDERS FURTHER CHINESE LOANS

Why in the news?

  • IMF warns Maldives of debt distress amid plans for more Chinese loans; India extends goodwill support with budgetary aid.
  • Urges revenue increase, spending cuts, and reduced external borrowing to avert economic crisis.

About the International Monetary Fund (IMF):

  • IMF: Organization of 190 member countries.
  • Representation based on financial importance.
  • Provides financial assistance for balance of payments problems.
  • Lends money to replenish reserves and stabilise currencies.
  • Requires countries to adopt IMF-monitored structural adjustment policies for economic growth.
What is Government Securities (G-Sec) ?

  • Issued by Central or State Governments to finance fiscal deficit.
  • Represents a contractual debt obligation acknowledging the government’s debt.

Types of G-Sec:

  • Treasury Bills (T-bills): Zero-coupon securities issued at discount, redeemed at face value.
  • Cash Management Bills (CMBs): Introduced in 2010 for short-term cash flow mismatches.
  • Dated G-Secs: Pay fixed or floating coupon rates on a half-yearly basis.
  • State Development Loans (SDLs): Issued by State Governments through auctions.

Role of RBI:

  • RBI conducts Open Market Operations (OMOs) to adjust money supply.
  • Sells G-Secs to remove liquidity, buys back to infuse liquidity.
  • Balances inflation, aids bank lending.
  • Conducted through commercial banks.
  • Used alongside other monetary policy tools.