IMF to mobilize $45 Billion for new trust

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According to a study written by IMF employees and reviewed by Reuters, the IMF intends to raise approximately $45 billion for a new trust to help a broader variety of countries, including some middle-income economies, deal with climate change and other longer-term concerns.

After the Group of 20 major economies endorsed formation of the instrument in October, the IMF’s executive board is poised to approve proposals for the new Resilience and Sustainability Trust (RST) on Wednesday.

According to the document, nearly three-quarters of the IMF’s 190 members would be eligible to borrow from the new trust, which would be the global lender’s first facility dedicated to assisting nations with balance of payments risks created by longer-term issues.

“Today, even as IMF member countries face immediate challenges such as rising inflation, constrained fiscal space, and pandemic recovery — all of which are exacerbated by risks associated with the Ukraine conflict,” the paper said, “they are also calling on the Fund to assist them in responding to longer-term challenges such as climate change and pandemic preparedness.”

The IMF provides low-cost and zero-interest lending to nations facing short-term and medium-term fiscal and financial issues, such as capital flight, inflation, or high commodity prices.

However, it lacks a capability to assist nations in managing balance-of-payments risks posed by longer-term challenges, enhancing economic resilience to shocks, and pursuing opportunities for long-term, inclusive growth. Only low-income countries are eligible for the IMF’s Poverty Reduction and Growth Trust.

The RST, first proposed in June by IMF Managing Director Kristalina Georgieva, would bridge that gap by providing nations with inexpensive finance over longer repayment periods. The IMF has stated that loans under the scheme will commence in October.

It would be available to low- and middle-income countries, as well as minor governments, many of which were particularly badly impacted by the pandemic and its economic consequences.

Countries would still need to develop “credible policy and reform initiatives,” have sustainable debt and the capacity to repay the IMF, and be part of a concurrent financing or non-financing IMF-supported programme to qualify for lending from the new RST, according to the study.

In addition to lending, the IMF has policy coordination agreements with countries such as Serbia, Rwanda, and Senegal that do not require funding.

According to the report, the eligibility rules were established to “maintain economic stability” while reducing financial risks to the fund.

Richer IMF members might contribute to the trust by contributing their unused SDRs, the IMF’s own currency reserves, from a $650 billion allocation agreed last August.

According to the report, the investment will also act as a catalyst for additional public and private funding.

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