Member support for a proposed Resilience and Sustainability Trust is still being sought by the International Monetary Fund. This trust will give an opportunity for richer nations to divert their IMF reserves to nations that are in need of funding.
The IMF however said that it likely would be possible to make the new tool operational only next year.
Officials at the IMF have been working hard to gain support for the new trust, which was proposed by IMF chief Kristalina Georgieva in June. This trust would channel financial aid to countries that are not presently being served by the Poverty Reduction and Growth Trust.
Wealthy member countries are being urged by the IMF to donate or loan their share of the $650 billion in newly issued Special Drawing Rights (SDR) to developing and vulnerable countries. However some of the member countries have argued that the new trust would exceed the scope of IMF.
IMF strategy director Ceyla Pazarbasioglu and her deputy Uma Ramakrishnan wrote in a blog post on Friday that they hope to make progress on the Resilience and Sustainability Trust at the IMF and World Bank annual meetings next week.
“Building consensus is never easy; it takes time. Creative solutions are needed to bridge differences,” they wrote. “We are confident that with the international community’s support, the RST is one such innovative solution which could become operational in just over a year.”
The proposed RST will allow lending at lower rates and for longer periods of time compared traditional lending terms of the IMF which will be very helpful for building economic resilience and sustainability, particularly in low and middle income countries, as well as vulnerable middle-income countries,, they claimed.
One of the issues is that the purpose of the funding would have to be agreed upon by te members of the IMF and the purposes include climate change, pandemic preparedness, and other “worthy global public policy goals,” they said.
They pointed out that the trust had to be able to provide liquidity to creditors who channelled their SDRs if they ran into a balance-of-payments problem, as well as adequate credit risk protection for the donors.
They proposed a multi-layered credit risk protection framework with policy safeguards, financial buffers, and a diverse creditor and borrower base to that end.
RST lending would most likely be in addition to a regular IMF-supported programme, and would benefit from the programmes’ strong policy safeguards, they said.
The size of the trust, eligibility requirements, conditionality, lending terms, and the financial architecture, they said, were still being worked out.
“We continue to engage with our membership and other stakeholders to ensure full buy-in, while working closely with other international financial institutions, especially the World Bank, to ensure that the RST is a part of a broader strategy for international country assistance,” they said.
(Adapted from Flipboard.com)