## An IMF for Tomorrow

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**Canonical URL:** [An IMF for Tomorrow](https://www.imf.org/-/media/files/publications/fandd/article/2024/06/ruto.pdf)

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### Context and overview
- IMF membership: 190 member countries; Africa: 54 members (largest regional group).
- IMF portfolio: $112 billion spread across 90 countries.
  - Translates to just over $1.2 billion per borrower.
  - Excluding Argentina ($32 billion): $900 million per borrower.
  - Excluding the top three borrowers (Argentina, Egypt, and Ukraine): just under $700 million per borrower.
  - Top three borrowers account for 46 percent of the portfolio.
- Historical note: The EFF was last reformed in 1979; forty-five years have passed since that reform.

### Regional and climate shocks
- Recent climate and environmental impacts cited:
  - El Niño: deluge claimed over 250 lives in Kenya, Tanzania, and Burundi; displaced thousands; severe damage to property, crops, and infrastructure.
  - East Africa drought loss: estimated 9.5 million head of livestock lost, with 2.4 million in Kenya alone.
  - Current floods described as the worst since 1997 in parts of East Africa and the Horn of Africa.
- Argument: The intertwined challenges of development and climate change demand IMF instruments that reflect climate vulnerability and long-term resilience needs.

### Lending instruments: findings and critiques
- Current problems identified:
  - Lending is coupled to quota systems and the IMF’s standard macroeconomic program via the “exceptional access policy,” which is described as restrictive and imposing punitive surcharges that reflect an outdated system.
  - Tenor limitations: The Extended Fund Facility (EFF) disburses over only three or four years and must be repaid in seven (on a weighted average basis), making it ill-suited to support structural reform that takes many years.
  - Result: Many middle-income countries become locked into perpetual programs, borrowing from the IMF to repay the IMF.
- Positive innovations noted:
  - Rapid response during the pandemic: quick rollout of the RFI and the Rapid Credit Facility and allocation of a record $650 billion-equivalent in SDRs.
  - Introduction of the Resilience and Sustainability Facility (RSF): funded by rechanneling a portion of new SDRs, designed to help finance climate resilience and adaptation for countries that already have an IMF upper-credit-tranche arrangement.
    - RSF characteristics: final maturity of 20 years and carries no surcharges.
- Policy recommendations (lending instruments):
  - Urgent reform of IMF’s surcharge regime—either a radical overhaul that includes caps that take into account the interest rate cycle or scrapping surcharges outright.
  - Decouple lending from quota systems; unbundle lending instruments so each has its own relevant eligibility criteria and is tailored to specific government interventions and crises rather than tied to a single standard macroeconomic program.
  - Reform the tenor and design of facilities like the EFF to support long-term structural reform and climate adaptation.

### Special Drawing Rights (SDRs)
- Distributional concerns from recent allocations:
  - Low-income countries received 2.4 percent of the 2021 allocation.
  - Entire African continent received 5.2 percent.
  - Developed economies received 64 percent.
- Rechanneling and pledges:
  - Wealthier nations have pledged to redirect $100 billion in SDRs to support vulnerable countries.
  - These pledges have augmented IMF capacity and provided seed financing for the RSF.
  - Concern: slow deployment of redirected SDRs highlights inefficiencies in current practices.
- Policy implication: Reform issuance and redeployment mechanisms for SDRs to prioritize and expedite support to vulnerable and low-income countries.

### Debt distress: evidence and proposed approach
- Recent debt distress indicators:
  - World Bank’s international debt report: sovereign defaults in 10 countries in the past three years exceed the total for the preceding two decades.
  - Emerging market bond yield spreads in distress territory (1,000 basis points or more over comparable US Treasury bonds) rose tenfold, from 2 to 20 since 2020.
- Drivers: rising interest rates compounding debt-servicing challenges.
- Policy recommendation: Implement comprehensive debt-refinancing programs akin to the Brady Plan response to the 1980s Latin American debt crisis to provide relief and support sustainable development.

### Governance reforms
- Diagnosis:
  - Global economic governance has lagged behind the economic rise of the Global South and geopolitical shifts.
  - Current voting rights in international financial institutions do not reflect today’s economic and demographic realities.
  - The Global South accounts for half of global GDP and 80 percent of the world’s population.
- Governance goals:
  - More equitable representation and independence in decision-making processes consistent with corporate governance principles.
  - Ensure IMF governance adapts so the institution remains relevant and responsive to its global membership.

### Overall prescription and imperative
- Core thesis: The IMF must listen to the needs of its global membership and adapt to emerging challenges—particularly climate vulnerability, long-term structural reform needs, SDR allocation and redeployment, debt distress, and governance imbalances.
- Path forward: Cooperative and concerted reform across lending instruments, SDR policies, debt-refinancing frameworks, and governance structures to keep the IMF a cornerstone of global stability for generations to come.

*William Ruto, President of Kenya, "An IMF for Tomorrow" (June 2024).*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2024/06/ruto.pdf_