IMF outlines US$50B climate and resilience lending plan

International Monetary Fund officials outlined plans for a proposed US$50-billion lending trust focused on climate change and sustainability, providing the greatest detail so far on a key initiative that the institution aims to put in place this year.

About three-quarters of IMF nations would be eligible for money from the Resilience and Sustainability Trust, or RST, according to Ceyla Pazarbasioglu and Uma Ramakrishnan, the director and deputy director of the fund's strategy, policy and review department. That includes all low-income and developing countries, as well as middle-income nations with gross national per-capita income of less than about US$12,000 per year.

The trust aims to address longer-term challenges to economic stability, including climate change, pandemic preparedness and digitalization, the IMF said. The fund would determine access on a case-by-case basis and that access would depend on countries' debt sustainability and commitment to making structural changes. Nations also would need to be already participating in a traditional IMF program, making the trust a supplement rather than a substitute.

“Even as countries continue to battle COVID-19, it is crucial not to overlook the longer-term challenge of transforming economies to become more resilient to shocks and achieve sustainable and inclusive growth,” Pazarbasioglu and Ramakrishnan wrote. “The pandemic has taught us that not addressing these longterm challenges in a timely manner can have significant economic consequences, with the potential for future balance of payments problems.”

The trust would be funded by richer nations channelling their IMF reserves — known as special drawing rights, or SDRs — to poorer ones, and would need to mobilize US$50 billion to meet projected demand, the officials said. The hope is to have the trust approved by the executive board by the fund's spring meetings in April, and fully operational by year end.

The proposal is the next big step for the IMF in moving to meet global challenges. It seeks to address a structural limitation in last year's creation of a record US$650 billion in SDRs to deal with pandemic fallout.

Those reserves by IMF rules were allocated to all member countries based on quota, roughly equivalent to the size of their economies. This meant bigger, more stable nations got more, while smaller, more vulnerable countries got less. Although there's already a way for willing wealthy countries to help the poorest nations by sharing reserves, the new trust is needed to broaden beneficiaries to include middle-income countries.

The amount of money available for any nation to borrow from the trust would be capped at 150 per cent of a country's so-called IMF quota — its share of the institution's resources — or about US$1.4 billion, whichever is smaller, the officials said. That condition effectively limits how much money a large middle-income nation like Turkey, Russia or Argentina could get.

Since the trust would aim to address longer-term risks to a nation's balance of payments, fund staff have proposed giving nations 20 years to pay them back, with repayment of the loan beyond just interest instalments starting after 10 years.