IMF approves $45bn fund to support economic resilience in poor and middle-income countries

The Resilience and Sustainability Trust will 'amplify the impact' of the $650bn special drawing rights allocation implemented last August

IMF aims to mobilise at least $45bn in resources for its new Resilience and Sustainability Trust. AFP

The International Monetary Fund has approved the creation of Resilience and Sustainability Trust (RST) and seeks to raise $45 billion for the new funding facility to help member-nations deal with longer-term structural challenges that pose macroeconomic risks including climate change and pandemics.

The new facility, which aims to help low-income and vulnerable middle-income countries, will come into effect on May 1, IMF managing director Kristalina Georgieva said in a statement on Thursday.

The trust will “amplify the impact” of the $650bn special drawing rights allocated in August last year by channelling resources from countries with strong external financial positions to vulnerable countries where they are needed the most.

“The aspiration is to build a trust of at least $45bn in resources,” Ms Georgieva said.

“We have worked extensively with our members and other stakeholders to design the RST, with the goal of balancing the needs of potential contributors and borrowers."

The IMF approved a record general allocation of $650bn in reserve assets, better known as SDRs, to help member countries, especially emerging and developing nations, cope with the economic fallout of the coronavirus pandemic.

The allocation was the biggest in the fund’s 77-year history and is meant to help boost global liquidity. Of the $650bn allocation, about $275bn will go to emerging markets and developing countries, the lender said at the time.

It will serve as a third pillar of the IMF’s lending toolkit, in addition to the General Resources Account and the Poverty Reduction and Growth Trust.

It will provide policy support and affordable longer maturity financing — with a 20-year maturity and a more than 10-year grace period — to help build resilience against long-term risks to the stability of balance of payments of member countries.

About three-quarters of the IMF’s country membership will be eligible for RST financing, including low-income members as well as most middle-income countries and all small developing states, the IMF said.

“Our membership had called on us to enhance our existing lending toolkit to address a growing need for building resilience and sustainability … in order to reduce economic risks in the future,” Ms Georgieva said. “Today, our membership has come together and responded.”

The global economy, which fell into its deepest recession since the Great Depression after the pandemic, made a strong recovery in 2021. However, the new waves of Covid-19, coupled with the worsening global geopolitical situation, are muddying the global economic outlook.

In October, the IMF lowered its growth forecast for global output, amid weakening momentum, uneven access to vaccines, supply chain disruptions and risks from rising inflation that underscore structural weaknesses and highlight vulnerability of low-income and middle-income countries. The fund revised down growth last year to 5.9 per cent from its 6 per cent estimated in July, while keeping projection for this year unchanged at 4.9 per cent.

It revised down its 2022 output projections to 4.4 per cent, half a percentage point lower than its estimate in October, in its World Economic Outlook in January.

But the fund is expected to lower its projections further in its World Economic Outlook next week as the Russian war in Ukraine continues to dent business and consumer confidence.

The reforms supported by the RST are also intended to boost financing from the private sector, donors and other international financial institutions, Ms Georgieva said.

“Close collaboration with the World Bank and other IFIs will be critical for the success of the RST.”

A package of high-quality policy measures consistent with the fund’s purpose will make a member eligible for RST support. They would also need a concurrent financing or non-financing IMF-supported programme with appropriate macroeconomic policies to mitigate risks for borrowers and creditors, in addition to sustainable debt and adequate capacity to repay the fund, the IMF said earlier this year.

“Access to RST financing would be determined case by case, based on the strength of reforms and debt sustainability considerations, and is expected to be capped at 150 per cent of IMF quota or SDR1bn, whichever is smaller,” Ceyla Pazarbasioglu, director of the IMF’s strategy, policy and review department, said at the time.