The International Monetary Fund is set to relax financing terms and expand access eligibility for a new $50 billion trust that will channel Special Drawing Rights, a type of reserve asset, from wealthy nations to more vulnerable states.
Sign up for Devex Invested
The must-read weekly newsletter that keeps you up to date with news about business, finance, and the SDGs.
About three-quarters of IMF members may be able to tap funding in the form of loans from the Resilience and Sustainability Trust, wrote IMF economists Ceyla Pazarbasioglu and Uma Ramakrishnan in a blog post Thursday. This would include all low- and middle-income countries whose gross national incomes are below roughly $12,000 per capita.
The goal is to win IMF board approval for the trust at the Spring Meetings in April. The G-20 group of nations has backed IMF’s plan so far.
Financing terms: The RST proposal entails that loans coming from the trust have flexible financing terms.
“Consistent with the longer-term nature of balance of payments risks the RST seeks to address, its loans would have much longer maturities than traditional IMF financing,” Pazarbasioglu and Ramakrishnan wrote. That includes a 20-year maturity on the payments and a 10-year grace period, as well as concessional interest rates for low-income countries.
The trust could also support programs related to climate change, given the threat it poses to macroeconomic stability.
Using the SDRs: Last year, IMF issued $650 billion in SDRs as part of its response to the COVID-19 crisis. Because the assets are allocated based on IMF share quota, wealthy nations took the greatest portion, while the lowest-income countries got only a fraction. The question hanging over the issuance was how to move the SDRs to those in need.
IMF said that for the trust to work, borrowing states must enact reforms “conducive to improving balance of payments stability.” However, the RST will also depend on wealthy states providing “meaningful resources” for the plan.