The executive board of the International Monetary Fund authorized the formation of a new facility on Wednesday to assist low-income and most middle-income countries in dealing with longer-term issues such as climate change and pandemics.
In a statement following the board meeting, IMF Managing Director Kristalina Georgieva said that the new Resilience and Sustainability Trust received approval. It will go into force on May 1 to raise at least $45 billion. The trust, she added, would intensify the impact of the IMF’s $650 billion Special Drawing Rights grant last year by allowing richer members to utilize their emergency reserves to help weaker nations solve longer-term difficulties that endangered their economic stability. She stated, “This historic decision exemplifies the spirit of multilateralism.”
“It demonstrates that when there is a need and a desire, we can work together to produce a substantial result that benefits everyone.”
Assistance for The Rising Inflations
Currently, the IMF provides low-cost and zero-interest lending to nations to assist them in dealing with short-term issues like capital flight, inflation, rising commodity prices, and medium-term fiscal and financial concerns.
However, it could not assist countries in managing balance-of-payments risk presented by longer-term concerns. Its Poverty Reduction and Growth Trust was only available to low-income nations until today. With a 20-year maturity and a 10-1/2-year grace period, the RST will cover those gaps, making affordable financing available to a wider range of nations over longer payback durations. By October, the IMF expects to start lending under the scheme.
According to the IMF, the funds will be accessible to low-income and most middle-income nations and all small developing countries. The epidemic and its economic consequences impacted several of these states particularly hard.
Countries would still need to develop “credible policy and reform measures,” have sustainable debt and adequate capacity to repay the IMF, and be a part of a concurrent IMF financing or non-financing programs, such as its policy-coordination arrangements with Serbia, Rwanda, and other countries, to qualify for lending from the new RST. According to the IMF staff document, the eligibility criteria were drawn up to balance creditor and debtor demands while minimizing financial risks to the fund.