The New Arrangement to Borrow is a renewable funding mechanism that was started by IMF in 1998.
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New Arrangement to Borrow (NAB):
Why in news?
Members of the International Monetary Fund (IMF) agreed to maintain its funding at $ 1 trillion which is IMF’s overall lending capacity.
- NAB became the primary fundraising facility for IMF loans when it was introduced in the late 1990s.
- IMF deal will allow an extension of non-permanent, supplementary sources of funds such as the New Arrangement to Borrow (NAB) and bilateral borrowings from countries.
- IMF had entered into NAB and bilateral borrowings after the 2008 financial crisis to increase its lending ability.
- The agreement extended the bilateral borrowing facility till 2020 and a potential doubling of the NAB.
- The NAB has 40 participants according to the IMF.
- The NAB was first proposed in 1995 following the Mexican financial crisis. During that period, there were growing concerns that significantly more resources would be needed in future to adequately respond to economic downturns.
- As a result, the IMF got in contact with the G-10 about developing a new financing arrangement that would double the amount available under the GAB.
What are General Agreements to Borrow (GAB)?
- General Agreements to Borrow (GAB) was a lending medium for members of the Group of Ten (G-10).
- Under GAB, G-10 countries deposited funds into the International Monetary Fund (IMF) for a nation in economic distress to access.
What is G10?
- The Group of Ten (G10) is one of five “group of” groups, not to be confused the Groups of 7, 8, 20, or 24. Each of these consists of a group.
- The G10 consists of eleven industrialized nations that meet on an annual basis or more frequently, as necessary, to consult each other, debate and cooperate on international financial matters.
- The member countries are Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom, and the United States, with Switzerland playing a minor role.
- The G10 was established when the 10 wealthiest International Monetary Fund (IMF) member countries agreed to participate in the (GAB) General Agreements to Borrow.