2022-04-17-IMF-Proposal_To_Establish_A_Resilience_and_Sustainability_Trust_166页_1mb

IMF Policy Paper Summary: Proposal to Establish a Resilience and Sustainability Trust

Core Content

The International Monetary Fund (IMF) has approved the establishment of the Resilience and Sustainability Trust (RST), a new trust designed to provide long-term, affordable financing to member countries facing macroeconomic risks from structural challenges such as climate change and pandemic preparedness. The RST aims to support economic resilience and sustainability by addressing these long-term issues and enhancing balance of payments (BoP) stability.

Main Objectives

• To provide long-term financing to low-income and vulnerable middle-income countries.
• To enhance economic resilience and sustainability through policy reforms.
• To complement the IMF's existing lending toolkit by focusing on structural challenges.
• To amplify the impact of the $650 billion SDR allocation from August 2021.

Key Points

1. Eligibility and Access

• Approximately 75% of IMF members are eligible for RST financing.
• Eligible members include:
  • All low-income countries (LICs).
  • All developing and vulnerable small states with a population under 1.5 million and per capita GNI below 25 times the 2021 IDA operational cutoff.
  • All middle-income countries (MICs) with per capita GNI below 10 times the 2021 IDA operational cutoff.
• Access is capped at the lower of 150% of quota or SDR 1 billion.
• Reforms strength and debt sustainability are key considerations for access.

2. Lending Terms

• 20-year maturity with a $10\frac{1}{2}$-year grace period.
• Interest rate is a modest margin above the three-month SDR rate.
• Tiered interest structure to provide more concessional terms to low-income countries.
• Preferred creditor status is assumed for RST lending, similar to the GRA and PRGT.

3. Governance and Operational Structure

• The IMF Executive Board will be at the center of governance.
• Contributor consent is required for any fundamental amendments to the Trust.
• A three-year review is planned, with an interim review after 18 months of operations.
• Close coordination with the World Bank and other multilateral development banks (MDBs) is emphasized to leverage specialized expertise and policy advice.

4. Financial Architecture

• The RST is a loan-based trust, similar to the PRGT.
• It includes three accounts:
  • Loan Account (LA): For disbursing loans.
  • Reserve Account (RA): To maintain liquidity and safety of contributor claims.
  • Deposit Account (DA): To hold contributions and ensure reserve asset status.
• SDR contributions are expected to be voluntary, with SDR Voluntary Trading Arrangements (VTAs) facilitating the conversion of SDRs into currencies.

5. Resources and Financing

• The estimated total resource needs for the RST are SDR 33 billion (about US$45 billion).
• Mobilization of resources will be initiated immediately, with operations expected to start by the end of 2022.
• Pooling RST assets with those of the PRGT is encouraged to support investment purposes.

6. Risk Management

• The RST will implement a multilayered risk management framework, including:
  • Debt sustainability assessments.
  • Capacity to repay evaluations.
  • Reserve buffers to manage financial risks.
• Contingency measures can be adopted if needed, typically near the end of each financial year or on an ad hoc basis.

7. Support and Coordination

• The IMF will coordinate with the World Bank to ensure coherent policy advice and catalyze financing.
• A coordination framework for pandemic preparedness is encouraged, similar to the one for climate change.

Conclusion

The RST represents a significant step in the IMF's efforts to support long-term structural reforms and enhance economic resilience. It is designed to amplify the impact of existing SDR allocations and provide sustainable financing to countries most in need. The trust is expected to operate by the end of 2022, with financial and policy safeguards in place to ensure sustainability and effectiveness.