A Practical Proposal to Ensure the IMF’s New Trust Will Flourish, Not Fizzle

The IMF’s promising initiative to establish its Resilience and Sustainability Trust (RST)—a new way to lend to developing countries—is on track to be agreed and operational in 2022. But there is a catch: the proposed conditions for accessing funds could be too restrictive and lead to too few countries benefiting from the IMF’s support and too little urgent action to tackle climate change and its impact. Now is the time to rethink key design elements to ensure that the new trust will flourish, not fizzle.

The IMF plans to finance the new trust by using some $50 billion pledged by large economies. This is one way in which the IMF’s injection of liquidity into the world economy in 2021—through a new allocation of its Special Drawing Rights (SDRs) to member countries—will be put to good use by on-lending a portion to developing countries. The intention to make almost three quarters of the IMF membership eligible in principle for the RST is a welcome step in the right direction. To walk the talk, the race is on to establish a useable RST by the IMF April meetings and disburse money by the end of the year.

But all of this effort will not amount to much if only a few countries choose to access the RST. The opportunity will be missed to support the action that is urgently required by all countries to meet commitments to mitigate climate change and to implement their plans to adapt to it.

One potential obstacle is the requirement that countries accessing the RST also have a regular IMF program in place. Given the reluctance of many developing countries to have an IMF program—and the absence of a need for one in many others—this constraint could prove binding or at the very least could seriously delay the support for the specific policy actions to build resilience and sustainability.

In a longer note, we propose a practical solution: allow access to the RST up to a small but reasonable limit without the need of an IMF program. Beyond that limit, access would depend on whether the country has balance-of-payments problems aside from those arising from climate change and the efforts to deal with it. This proposal would encourage more countries to access the RST quickly and without stigma. It would also meet creditors’ demands that the RST not be used as a substitute for the financing that would normally be made available under a regular IMF program. In addition, conditions to access the RST in stages would reflect the unique roles the IMF can play in providing transparency and coherence to a country’s economic policies to tackle climate change, and in catalyzing official financing and private sector investment to support policy implementation.

The creation of the new IMF trust is one bright spot at a time of vacillation and delay in transforming the general aspirations in G20 and COP26 meetings to specific actions that tackle climate change and increase financing for developing countries. The IMF should seize this chance to allow its RST to succeed by first getting its design right.