Backing grows for new IMF Covid-19 and climate fund

LONDON/WASHINGTON (REUTERS) – Plans for a new International Monetary Fund (IMF) “Resilience and Sustainability” fund that would expand its support to dozens more vulnerable countries gained key international backing on Thursday (June 24) ahead of crucial meetings.

IMF chief Kristalina Georgieva this month proposed the new trust to allow rich countries to channel some of their new IMF reserves to poor and middle-income counterparts ravaged by Covid-19 or climate change.

“This is something we certainly support” said Mr Lars Jensen, a senior economist on the United Nations Development Programme (UNDP) and the author of a new report on how the IMF’s new funding should be directed.

The UNDP estimates the IMF’s Poverty Reduction and Growth Trust (PRGT), which is also expected to play a key role in a voluntary redistribution of new Special Drawing Rights (SDRs) money, is only open to 55 of the world’s 82 most debt-vulnerable developing economies.

The Group of Seven (G-7) wealthy nations alone will receive US$283 billion (S$381 billion) of the overall US$650 billion SDR allocation. All “high-income” countries will get US$438 billion, whereas 75 of the poorest countries will get US$62 billion among them.

The Covid-19 crisis is expected to leave 47 of the 82 vulnerable countries with gross debt already above levels deemed sustainable.

Additionally, nine of the 10 most climate-change vulnerable countries are also highly debt-vulnerable developing economies.

“As a possible development objective of an SDR channelling to vulnerable countries, it would be natural to target climate due to its global implications,” Mr Jensen said, adding that the fund could even bulked up by leveraging it in borrowing markets.

G7 leaders have already signalled their backing to redistribute US$100 billion of the new SDR money. Ms Georgieva has said that China has expressed interest in participating and that she expected other major emerging economies to do the same.

The IMF’s executive board will meet on Friday on the next steps and finance officials from the Group of 20 major economies will discuss the SDR reallocation issue when they meet in Venice in July.

Mr Scott Morris of the Centre for Global Development said funding for the proposed new IMF trust was already earmarked in the US Treasury’s recent budget request to Congress, underscoring Washington’s support.

The US Treasury is working closely with the IMF to explore options and design mechanisms for channelling SDRs to vulnerable countries, one US Treasury official told Reuters on condition of anonymity because of the sensitivity of the matter.

“The IMF’s proposed Resilience and Sustainability Trust is one of the options under discussion,” the official said, without elaborating on other options.

Mr Jensen said he hoped the new fund would also give debt-strained countries who have so far resisted restructuring their debt for fear of losing access to borrowing markets, a safety net to take that step.

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