## RESILIENCE AND SUSTAINABILITY FACILITY—OPERATIONAL GUIDANCE NOTE (ppea2023051) ## Source details **Canonical URL:** [RESILIENCE AND SUSTAINABILITY FACILITY—OPERATIONAL GUIDANCE NOTE (ppea2023051)](https://www.imf.org/-/media/files/publications/pp/2023/english/ppea2023051.pdf) ## Other formats - [Markdown version](/-/media/files/publications/pp/2023/english/ppea2023051.pdf.md) - [Structured JSON version](/-/media/files/publications/pp/2023/english/ppea2023051.pdf.json) --- ### Executive summary — purpose, scope, and context - Purpose: General guidance on the operationalization of the Resilience and Sustainability Facility (RSF) for arrangement requests and reviews. - Objective: Provide longer-term, affordable financing to members to address longer-term structural challenges from climate change and pandemic preparedness. - Pilot experience: Guidance informed by early operationalization in a pilot phase; as of end-September 2023, eleven arrangements approved to access RST financing under the RSF during a pilot phase. - Date on document: September 22, 2023. - Applicability: - Applies to all RSF arrangements, including upcoming reviews of current arrangements and future RSF financing requests. - Reviews under RSF arrangements in place as of October 2023 and all subsequent requests will be guided by this note. - Guidance will be updated once more experience with pandemic-related RSF financing requests is gained. ### Key elements of the RSF framework: objectives, eligibility, qualification - Objectives: - (i) support policy reforms that reduce macro-critical risks associated with longer-term structural challenges, and - (ii) augment longer-term policy space and financial buffers to mitigate risks arising from such longer-term challenges (RST Board paper, ¶16). - Complementarity: RST provides longer-term financing compared to other IMF lending instruments focused on short- and medium-term challenges. - Eligibility criteria (Board-defined at inception): - (i) an IMF member’s per capita gross national income (GNI) in 2020 (or 2019, if 2020 data is not available) does not exceed ten times the 2021 IDA operational cutoff ($1,205), or - (ii) it has a population below 1.5 million as of 2020, as reported by the World Bank (WB), and its per capita GNI in 2020 (or 2019, if 2020 data is not available) does not exceed twenty-five times the 2021 IDA operational cutoff (RST Board paper, ¶34-36). - Eligibility list maintenance: - Annex I lists RST-eligible countries as of October 2023; updated to reflect updated IDA operational cutoffs on a two-year cycle synchronized with PRGT eligibility reviews. - Ad hoc interim decisions possible to avoid disadvantaging members that meet criteria. - First review of eligibility: RST interim review (expected in mid-2024) and align with PRGT thereafter. - Qualification for an RSF arrangement (eligible members must have): - (i) a package of high-quality reform measures (RMs) that make significant progress toward strengthening prospective BoP stability by reducing macro-critical risks related to qualifying longer-term structural challenges; - (ii) a concurrent on-track qualifying UCT program with at least 18 months remaining at time of RSF arrangement approval; and - (iii) sustainable debt and adequate capacity to repay. ### Box 1 — Balance-of-Payments (BoP) needs under the RSF: core guidance - Purpose and linkage: - RSF arrangements aim to reduce prospective BoP risks and contribute to longer-term BoP stability; prospective BoP risks tied to longer-term structural challenges are a qualification criterion (¶20). - Quantification of prospective BoP risks is expected where feasible but not required. - Short- and medium-term BoP/fiscal needs linked to RSF reforms: - Any direct short- to medium-term BoP financing needs arising from RSF-supported reforms should be: - precisely estimated by staff; and - included in the fiscal or BoP frameworks. - Staff reports should note intended uses of RSF funding, including: - (i) covering shorter-term BoP/fiscal needs directly associated with RST-supported reforms; - (ii) increasing policy space for fiscal spending and reforms related to qualifying challenges; - (iii) augmenting longer-term buffers to strengthen capacity to face shocks linked with qualifying challenges (Board Paper, ¶16, 30). - Current BoP needs not directly linked to RSF RMs should be covered by the UCT program (¶12, Annex II). - Transparency and budget support: - Authorities expected to publicly state general intentions for use of RSF policy space in MEFP/PS (¶42). - RSF loans are not earmarked for specific projects; if intended as budget support, general IMF budget support policies apply. - RSF arrangements cannot be used on a precautionary basis; available financing expected to be drawn promptly after Board approval (¶56; RST Board paper, ¶30). - Concurrent UCT program: - RSF normally approved concurrently with approval or completion of a review under a qualifying UCT program with at least 18 months remaining (see ¶49, RST Board paper). - RSF arrangement automatically terminates when UCT program expires or is cancelled. - RSF financing must be additional to—and not substitute for—other IMF financing; UCT program must “stand on its own.” - Financing Assurances Policy for concurrent UCT program requires: - (i) firm commitments of financing in place for upcoming 12 months, and - (ii) good prospects for adequate financing beyond those 12 months. - RSF may not be used to close UCT program financing gaps, except for BoP needs directly stemming from RSF-supported RMs. - Presentation of RSF financing in program documents: - Shown below the line, along with reserves, and illustrated separately from Fund financing under the UCT program, after closure of any exceptional financing need. - International reserves should be shown to remain adequate and fiscal gaps closed through the program horizon without RSF financing. - Any measurable impact of RSF-supported reforms on BoP or fiscal projections should be captured. - Capacity to repay and debt sustainability safeguards: - Board documents must include: - (i) extended CtR analysis covering RSF repayment period, taking into account all Fund borrowing (PRGT+GRA+RST); - (ii) debt risk analysis over a longer time horizon (up to 20 years); - (iii) composition of public debt, including share of de facto senior debt. - Program documents should include standardized CtR “dashboard” charts for the RSF repayment period (20 years). - Teams must use LIC-DSF and MAC-SRDSF frameworks and include natural disaster stress test if applicable; cover long-term risks in the 20-year horizon. ### A. Diagnostics, tools, and quality control (Section A / Box 2) - Diagnostics: - Assessment should be underpinned by a variety of external and/or internal diagnostics; no single diagnostic is mandatory. - Staff encouraged to use analytical products including: - IMF: Climate Policy Diagnostic (CPD), Climate Public Investment Management Assessment (C-PIMA), Article IV and Selected Issues papers, FSAP, Fiscal Transparency Evaluations. - WB: Country Climate and Development Report (CCDR), Climate Change Knowledge Portal, Climate Change Institutional Assessment (CCIA). - Pandemic preparedness diagnostics: UHPR, SPARs, JEEs, NAPHS, WB Pandemic Preparedness Assessments, HFPM, NHA. - Functional Department (FD) support: - FAD, MCM, LEG, STA, ICD, RES available to supplement diagnostics, modeling, legal frameworks, climate statistics, and macroeconomic modeling. - CPDs completed as of end-September 2023 for Kenya, Jordan, Cabo Verde and Mauritania (numeric note preserved). - Quality standards: - Diagnostics should meet minimum standards of analytical soundness, objectiveness, realism, and be grounded in empirical evidence where possible. - Preferential use of findings validated by multiple independent diagnostics. ### B. Assessing prospective BoP stability risks and macroeconomic justification (Section B / Box 3) - Challenges and tools: - Use DSA framework and models like Debt-Investment-Growth and Natural Disasters (DIGNAD) and CPAT; for large G20 emitters use IMF-ENV as appropriate. - DIGNAD can quantify effects of natural disasters in small open economies and benefits of resilient infrastructure and improved public investment efficiency. - Program documentation expectations: - Teams should illustrate and quantify macro-critical risks associated with qualifying challenges in the macro framework and DSA where possible. - Provide illustration of the benefit of the RSF arrangement where feasible, including quantifying debt-service savings when RSF substitutes for more expensive financing. - Explicitly acknowledge uncertainty inherent in quantifying long-term costs and benefits. ### C. Designing strong Reform Measures (RMs) — principles and characteristics - Definition: A strong RM is a single policy action or a set of closely related policy actions that make significant progress toward reducing risks to prospective BoP stability from qualifying longer-term structural challenges. - Core principles: - National ownership; tailoring to member’s circumstances; clarity in specification; effective coordination with multilateral institutions. - Grounding and consistency: - RMs must be grounded in solid diagnostics and consistent with the member’s broader policies; conflicting policies can compromise qualification. - RMs should support achieving or surpassing international climate commitments (e.g., NDCs). - Characteristics: - Criticality: RMs must be key to reducing macro-critical risks. - Ambition: Aim for reforms unachievable within same timelines absent RSF; PN/SR should detail objectives and expected outcomes (examples include specified carbon pricing paths, energy subsidy phase-out schedules, structural adaptation measures). - Depth: Prefer high-depth reforms leading to permanent institutional changes (legislative changes); medium-depth reforms can be included; low-depth reforms (feasibility studies) should not be stand-alone RMs except in exceptional cases. - Tailoring, sequencing, and documentation: - Tailor RM packages to institutional environment and capacity; sequencing crucial in FCS, SDS, and LIDCs. - RMs should identify responsible entities, specific actions, and target completion dates; detailed specifications may be in the TMU. - Low-depth measures may be part of a package but not standalone; inclusion affects access level discussions (¶38). - Synergies with UCT program and dual-purpose reforms: - Macroeconomic stabilization reforms generally belong to the UCT program; RSF RMs should primarily target structural challenges. - Single measures may be identical in UCT conditionality and RSF RM when critical to both. - Policy additionality, parsimony, catalytic effect: - RMs should spur additional reform compared to a no-RSF scenario; be parsimonious; strong RMs typically catalyze private climate- and health-related investment. ### Determining access levels (Section D) — norms and exceptions - Access guidance: - Operational anchor: norm of 75 percent of quota; capped at the lower of 150 percent of quota or SDR 1 billion (¶46-47, RST Board paper). - Norm: neither floor nor cap; access up to norm generally does not require additional justification beyond qualification criteria. - Justification for access above the norm may be considered based on: - (i) short- to medium-term BoP needs directly associated with RSF-supported reforms; - (ii) strength of RM package (criticality, ambition, depth per ¶25); - (iii) capacity to repay considering debt sustainability, carrying capacity, composition of debt (¶47). - Process for assessing above-norm access: a) CtR assessment: CtR must be at least “adequate” for any RSF access level (¶15). b) Reform package strength: exceptionally strong package may qualify for higher access if CtR adequate. c) Direct BoP financing needs from RMs: measurable, discrete, incurred during program period, included in macro projections—may justify higher access. - Examples of eligible costs: additional imports for solar/wind expansion (mitigation), costs for climate-resilient agriculture or seawalls (adaptation), increased cash transfers accompanying energy transition measures. - Poorly defined or covered-by-others costs do not justify access above the norm. ### Augmentation, successive RSF arrangements, and catalytic role (¶39 and related) - Augmentation and repeated access: - Permitted subject to maximum access cap. - Two-stage approach: successive RSF arrangements or augmentation when diagnostics, political capital, capacity, or time constraints imply phased implementation. - RMs can be added during RSF arrangements; stronger packages may justify augmentation. - Catalytic role: - RSF financing is intended to help mobilize private finance; reforms and synergies with IFIs can facilitate larger official financing and access to climate funds. - EMDE challenges to attracting private capital include risk-return mismatch, weak governance, limited capacity, lack of high-quality data, lack of standardized ESG products, and limited pipelines for investable projects. - The accompanying UCT program anchors reforms and buttresses macro/financial stability to attract investors. - How RSF reforms attract climate finance: - Integrate climate considerations into PFM and PIM, create pipelines of investable projects, climate budget tagging, integrate climate risk into financial stability frameworks, realign relative prices (e.g., subsidy reform, carbon pricing), and develop PPP/green-bond frameworks. - Engagement with partners: - Early consultation with development partners, IFIs (WB, regional development banks), private investors, WHO (for pandemic preparedness) encouraged; ensure IMF can independently assess implementation (no cross-conditionality). - WB Assessment Letters (AL) may be requested to inform RSF approvals/reviews. ### Phasing, reviews, disbursement modalities, and implementation timing - Synchronization with UCT reviews: - RSF reviews synchronized with concurrent UCT program reviews; RSF disbursements cannot substitute for UCT financing and occur only in context of on-track UCT-quality program. - RSF arrangement terminates when UCT program expires or is cancelled; all RMs must be implemented before last review date of UCT program. - Phasing and availability dates: - Phasing linked to RM implementation timing; availability dates normally mirror UCT availability but can be later if justified. - Teams must specify proposed phasing in SR at initial RSF financing request; normally phasing would be even across RMs. - When originally phased, RSF disbursements available upon completion of a single review should not exceed 50 percent of quota. - No RSF disbursement is available upon approval of an RSF arrangement; measures implemented before Board approval cannot be part of the RSF arrangement. - Assessment and disbursement timing: - RM must be implemented in its entirety for assessment; no waiver for non-observance under RSF. - Minor deviations may be acceptable if reform is substantively implemented and objective met. - RSF disbursements must be requested within 30 days of completion of the Board review; failure to request within 30 days forfeits that disbursement until next review. - Delays and rephasing: - Target dates are indicative; late implementation may be assessed at next review if timely assessment is prevented. - RMs can be modified, dropped, or added by Executive Board only in context of reviews; changes can affect access levels and phasing. - Rephasing requests by authorities require LOI and staff support; access associated with delayed review would not count toward 50 percent per-review limit. - Safeguards and monitoring: - A safeguards assessment is required under the concurrent UCT program; no separate safeguards assessment for RSF financing. - Post-Financing Assessment (PFA) expected when combined GRA/PRGT/RST credit outstanding exceeds 200 percent of quota or nominal RST threshold of SDR 0.38 billion credit outstanding triggers PFA. - Article IV consultations remain key vehicle for addressing RM impacts beyond program end. ### Misreporting, overdue obligations, remedial measures, and sanctions - Misreporting: - Occurs when inaccurate information leads to noncomplying disbursement or when Executive Board finds misreporting at concurrent UCT review not de minimis. - Consequences: noncomplying disbursements under UCT program make concurrent RSF disbursements noncompliant. - MD informs member; Board may require early repayment or determine objectives achieved despite deviation if deviation is minor; early repayment normally within 30 days of Board decision. - Overdue obligations: - MD will not recommend an RSF arrangement if member has overdue financial obligations to the Fund. - Overdue obligations to RST can suspend access to GRA and PRGT. - Remedial strategy includes prevention, intensified collaboration, escalating timetable for remedial measures; overdue obligations accrue interest equal to applicable tier structure rate subject to a minimum SDR charge. - In protracted cases remedial measures may include removal from RST-eligible list (6 months after arrears) and declaration of noncooperation with the Trust (12 months after arrears). ### RSF lending terms (key statistics) - Maximum maturity: 20 years with a grace period of 10½ years. - Principal repayments: 20 equal semi-annual installments beginning 10½ years after each RSF disbursement. - Interest: margin over the 3-month SDR interest rate (SDRi), differentiated across three groups: - Group A: - pay a margin of 55 basis points above the SDRi up to a cap of 2¼ percent, - are exempt from any service charges on RSF loan disbursements. - These are all PRGT-eligible countries that are not presumed blenders. Syria is included in Group A despite not currently being PRGT-eligible because Syria’s latest available GNI per capita is below the threshold for entry on to the list of PRGT-eligible members. - Group B: - pay a margin of 75 basis points above SDRi, - are subject to an upfront one-time service charge of 25 basis points on each RSF disbursement. - Includes all “presumed blenders” and all small states (below 1.5 million inhabitants) with per capita GNI below ten times the IDA operational income cutoff. - Group C: - pay a margin of 95 basis points above SDRi, - are subject to an upfront one-time service charge of 50 basis points for each RSF disbursement. - Includes all other RST-eligible countries (eligible non-small MICs and all small states with income above ten times the IDA operational income cutoff). - Margin and service charge structure subject to periodic review by the Board. ### Operational preparations, mission planning, and timeline (pre-mission note and ¶75) - Preparation timing: - Preparations should generally begin at least six months before the PCM, with at least 24 to 26 months remaining in the concurrent UCT program. - Engagement with WB (Country Director) should start in early stages; request AL and invite WB to PCM. - Country team-led preliminary discussions should involve FDs, WB, and other partners to build consensus on climate challenges, diagnostics, reform areas, CD needs, synergies, and pipeline for climate finance. - FD support determination should start ideally 6 months before PCM to allow resource planning; climate CD diagnostic missions should take place 2–3 months prior to negotiation mission if needed. - Mission objectives for request missions include agreeing RM matrix, integrating RSF financing in macro framework, and confirming diagnostics and partner support. - PN and SR documentation should include executive summary context, program modalities paragraph for RSF, RM matrix (Table 1), development partners table (Table 2), Climate Annex (for requests), DSA write-up reflecting structural challenges and responses, and RSF phasing table. ### Annex II — RSF financing presentation in program tables (illustrative Country X) - General guidance: - RSF financing should not contribute to closing external/fiscal financing gaps unless RMs generate direct, identifiable, and short-term BoP/fiscal costs not covered by other development sources. - RSF disbursements recorded below the line; gross reserves with and without RSF shown in memorandum items. - Specific costing of reforms required to justify access above the norm when financing RM BoP costs; quantification may be difficult—consult SPR if in doubt. - Illustrative 3-year RSF case (Country X): program length 3 years intended for budget support; RSF uses across years: - Year 1: build external and fiscal buffers. - Year 2: finance BoP and fiscal costs directly linked to RMs. - Year 3: substitute for more expensive domestic financing, increasing buffers. - Key numeric figures from illustrative Table A1 (preserved exactly): - Current Account [A]: -1000, -1050, -1000 - of which, identifiable RM BoP costs: 0, -500, 0 - Capital and Financial Account [B]: 750, 700, 700 - Overall Balance [A]-[B]: -250, -350, -300 - Change in reserves (without RSF): -500, 0, 0 - RSF disbursement (identifiable RM BoP costs): 0, 500, 0 - Financing Gap: 100, 100, 100 - Use of Fund credit: ECF/EFF: 100, 100, 100 - RSF disbursement (not linked to RM BoP costs): 50, 50, 50 - Memorandum items—Gross reserves (with RSF): 1000, 1050, 1100; Gross reserves (without RSF): 950, 950, 950; Total RSF disbursements: 50, 100, 50 - Fiscal presentation highlights (preserved figures): - Total revenue and grants: 2500, 2500, 2500 - Total expenditure and net lending: 4950, 4950, 4900 - Fiscal balance: -2450, -2450, -2400 - External financing—RSF disbursement (total): 50, 100, 50 - Increase in government assets: 50, 500, 0 - Memorandum items—Fiscal balance excluding RSF spending: -2450, -2400, -2400 ### Annex IV — DSAs in Joint RSF-UCT Programs (longer-term debt sustainability) - Medium-term debt sustainability is a key qualification for RST access. - RSF arrangements can only be approved if debt is assessed as sustainable under LIC-DSF or MAC-SRDSF frameworks. - Required discussion in DSAs: - Longer-term risks to debt sustainability, focusing on country-specific climate-related risks and policy action. - For climate cases, LT climate module in MAC SRDSF and 20-year baseline macro projections in LIC-DSF should include climate-related spending and financing mix and impact on long-run growth. - Teams should indicate if baseline assumptions align with authorities’ climate-related investment plans or are adjusted by staff. - Alternative scenarios and stress tests: - Encouraged to reflect costs/risks from climate change over longer term; illustrative figures typically show full 20- or 30-year horizon where appropriate. - LIC-DSF: 20-year projection period required; breaches in years 11–20 usually do not trigger downgrade unless breaches are large, persistent, and probable. - MAC-SRDSF: long-term modules on climate change, large amortizations, and demographics are required; modules allow projections over a 30-year horizon. - Teams expected to use tools, flexibility, and customization to discuss adverse effects of climate change on debt sustainability, potential costs/benefits of climate action, and implications for hydro-carbon exporters. ### Financial sector, governance, and enabling institutions (Annex IV / Annex VI / other excerpts) - Financial sector reforms: - Address climate data gaps, reporting of exposures to climate-related risks, and diagnostic exercises to support banks in managing physical and transition risks and steer private investment to climate investments. - Green taxonomies, green-bond frameworks, climate risk disclosure, data repositories, and climate risk stress testing are possible RMs. - Governance and corruption: - Apply 2018 Framework for Enhanced Engagement on Governance to identify governance vulnerabilities that exacerbate risks or hinder catalytic role of RSF. - Governance issues should generally be addressed in concurrent UCT programs; governance measures may be included in RSF reform package if specifically critical to addressing the qualifying challenge. - Tools include Centralized Governance Assessment, brainstorming sessions, governance diagnostics, Country Engagement Strategies (CES), climate-related CD reports, and SRs including TA reports. - Where governance vulnerabilities are severe, conditionality and CD should be sequenced, prioritized, and aligned with parsimony principle. *Source: RESILIENCE AND SUSTAINABILITY FACILITY—OPERATIONAL GUIDANCE NOTE (ppea2023051).* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Overview - Purpose: General guidance on the operationalization of the Resilience and Sustainability Facility (RSF) for arrangement requests and reviews. - Objective of the RSF: Provide longer-term, affordable financing to members to help address longer-term structural challenges from climate change and pandemic preparedness. - Pilot experience: The note has benefited from experience gained during early operationalization in a pilot phase. - Date on document: September 22, 2023. ### Operational issues covered - The RSF framework, including objectives, eligibility and qualification. - RSF arrangement design, specifically: - identifying longer-term structural challenges, - assessing the associated Balance of Payments (BoP) risks, - designing strong Reform Measures (RMs), - determining access levels. - The catalytic role of RSF-supported reforms and financing. - Coordinating diagnostics and reform priorities with outside expert stakeholders. - Other RSF modalities, such as phasing, reviews, safeguards, and lending terms. - Other operational considerations and documentation requirements. ### Scope and hierarchy - The note is an aid to implementation of the RSF policy and its underlying principles. - If any provision of the guidance note or its implementation conflicts with Board policy, Board policy prevails. ### Context and early uptake - The Resilience and Sustainability Trust (RST) was approved by the IMF’s Executive Board in April 2022 and became operational in October 2022. - As of end-September 2023, eleven arrangements have been approved to access financing from the RST under the RSF during a pilot phase. - Early RSF arrangements have focused on reducing risks to prospective Balance of Payments (BoP) stability from climate change through sets of measures covering both adaptation and mitigation. ### Applicability of the guidance - Applies to all RSF arrangements, including: - upcoming reviews of current arrangements, and - future requests for RSF financing. - Reviews under RSF arrangements in place as of October 2023 and all subsequent requests will be guided by this note. - The guidance will be updated once more experience with pandemic-related RSF financing requests is gained. ### Note organization (major sections summarized) - RST framework: objectives, eligibility and qualification. - RSF design guidance: identifying qualifying longer-term structural challenges; assessing BoP risks; designing strong RMs; determining access levels. - Catalytic role of RSF-supported reforms and financing. - Coordination with outside expert stakeholders. - Other RSF arrangement modalities: phasing, reviews, safeguards, lending terms. - Operational considerations and documentation requirements. ### Key elements of the RSF framework: objectives, eligibility and qualification - RST aim: enhance members’ prospective BoP stability by promoting economic resilience and sustainability through: - (i) support for policy reforms that reduce macro-critical risks associated with longer-term structural challenges, and - (ii) augmenting longer-term policy space and financial buffers to mitigate risks arising from such longer-term challenges (RST Board paper, ¶16). - Complementarity: RST provides longer-term financing compared to other IMF lending instruments focused on short- and medium-term challenges. Eligibility - RST eligibility is based on a combination of per capita income and population thresholds. - Board-defined criteria at inception: - (i) an IMF member’s per capita gross national income (GNI) in 2020 (or 2019, if 2020 data is not available) does not exceed ten times the 2021 International Development Association (IDA) operational cutoff ($1,205), or - (ii) it has a population below 1.5 million as of 2020, as reported by the World Bank (WB), and its per capita GNI in 2020 (or 2019, if 2020 data is not available) does not exceed twenty-five times the 2021 IDA operational cutoff (RST Board paper, ¶34-36). - The list of RST-eligible countries (Annex I) will be updated to reflect updated IDA operational cutoffs at periodic reviews, synchronized with Poverty Reduction and Growth Trust (PRGT) eligibility reviews on a two-year cycle. - Ad hoc decisions on eligibility could be taken in interim periods to avoid disadvantaging a member that is not on the eligibility list but meets the eligibility criteria. - First review of eligibility: at the RST interim review (expected in mid-2024) and will align with PRGT eligibility reviews thereafter. Qualification for an RSF arrangement - Eligible members must have: - (i) a package of high-quality reform measures (see ¶22-28) that help the member make significant progress toward strengthening its prospective BoP stability by reducing macro-critical risks related to qualifying longer-term structural challenges (Box 1); - (ii) a concurrent on-track qualifying UCT program with at least 18 months remaining at the time of RSF arrangement approval to ensure adequate policy safeguards, support a stable macroeconomic environment in which RSF-supported reforms can be effective, and provide sufficient time for RSF-supported reform implementation (¶10-13); and - (iii) sustainable debt and adequate capacity to repay (¶14-16). ### Annexes and supporting material referenced - Annex I: lists RST-eligible countries as of October 2023 and their respective country group classifications regarding the financial terms of RST financing. - Annex II: examples of presentation of RSF financing in standard Fund-supported program tables. - Annex III: additional information on Capacity to Repay (CtR) Assessments. - Annex IV: guidance on completing Debt Sustainability Assessments (DSAs) for the upper credit tranche (UCT) and RSF arrangements. - Annex V: principles for designing strong reform measures and examples. - Annex VI: key aspects of the 2018 Governance Framework relevant for RSF arrangements. *Source: RESILIENCE AND SUSTAINABILITY FACILITY—OPERATIONAL GUIDANCE NOTE, EXECUTIVE SUMMARY (September 22, 2023).* ### Box 1. Balance-of-Payments N eeds Under the RSF ### Box 1. Balance-of-Payments N eeds Under the RSF ### Purpose and linkage to BoP stability - By reducing prospective balance of payments risks, an RSF arrangement aims to contribute to longer-term BoP stability. - RSF arrangements may also have an impact on short- and medium-term BoP needs. - Risks to prospective BoP stability that may entail longer-term BoP financing needs are a qualification criterion for an RSF arrangement (see ¶20) associated with the relevant longer-term structural challenge. These risks are a qualification criterion for an RSF arrangement (though they are not related to access levels, which are governed by separate criteria, see ¶35-37). - Staff should leverage diagnostics and available modelling tools (¶20) to illustrate challenges to prospective BoP stability and substantiate the relevance of the proposed package of reforms to mitigating these prospective risks. Quantification, if feasible, is expected, but not required given inherent challenges. ### Short- and medium-term BoP/fiscal needs linked to RSF reforms - Where relevant, any direct short to medium-term BoP financing needs (see ¶12, 2 9) arising from the implementation of RSF-supported reforms should be: - Precisely estimated by staff; and - Included in the fiscal or BoP frameworks. - Any positive impact on the BoP in the short-to-medium term from RSF-supported reforms should also be captured to the extent possible. - The staff report for the RSF arrangement request (and any relevant SR outlining significant changes in the design of the RSF arrangement) should note the intended uses of the RSF funding, which can include: - (i) covering any shorter-term BoP/fiscal needs directly associated with implementation of RST-supported reforms; - (ii) increasing policy space for fiscal spending and reforms associated with qualifying longer-term structural challenges; and - (iii) augmenting longer-term buffers to strengthen the member’s ability to face shocks linked with qualifying structural challenges (Board Paper, (¶16, 30)). - Any direct costs related to the implementation of RMs should be described in detail. Current BoP needs not directly linked to RSF RMs should be covered by the UCT program (¶12, Annex II). ### Transparency, public statements, and budget support - Authorities are expected to publicly state their intentions for the general use of the policy space made available by RSF in the Memorandum of Economic and Financial Policies/Program Statement (MEFP/PS) (¶42). - Ideally such statements would be grounded in and refer to the authorities’ broader strategy for climate or pandemic preparedness, keeping in mind that RSF loans are not earmarked for specific projects. - If the authorities intend to use RSF financing as budget support, general IMF policies on budget support apply, including specifying this in program documents and ensuring appropriate arrangements between the Central Bank and the Ministry of Finance are in place. - RSF arrangements cannot be used on a precautionary basis; available financing is expected to be drawn promptly after the Board approves an RSF disbursement (¶56; RST Board paper, ¶30). - Examples of acceptable public statements and staff report phrasings are provided (e.g., support budgetary efforts to build resilience to climate change through greater spending on resilient infrastructure and green energy). ### Concurrent UCT program: timing, duration, and additionality - An RSF arrangement shall normally be approved concurrently with either the approval of, or the completion of a review under, a qualifying UCT program with at least 18 months remaining until its expiration (see ¶49, RST Board paper). - For FCL arrangements, the approval of an RSF arrangement could take place after the approval of the FCL and outside a review. - The RSF arrangement automatically terminates when the UCT program expires or is cancelled. - The duration of the concurrent UCT-quality instrument may be extended to allow a member to qualify for an RSF arrangement, provided such an extension is consistent with the decisions and policies governing the instrument. If fewer than 18 months remain, the member may request its extension in the Letter of Intent (LOI). A request for extension cannot be approved on the basis of the RSF financing request alone; country teams should support it with considerations related to the UCT program (¶29 & 30). - Alternatively, the authorities can cancel the ongoing UCT program and request a new UCT program of at least 18 months together with a request for approval of an RSF arrangement. - RSF financing must be additional to—and not substitute for—other IMF financing. The UCT program must “stand on its own” in terms of financing and adjustment. - The Financing Assurances Policy applicable to the concurrent UCT program requires: - (i) firm commitments of financing to be in place for the upcoming 12 months, and - (ii) good prospects that there will be adequate financing for the remaining program period beyond the upcoming 12 months. - RSF financing may not be used to close any financing gaps of the UCT program; UCT program must be assessed as sufficient to address financing needs during the program period to ensure medium-term external viability under the baseline scenario (under the General Resource Account (GRA)) or make “significant progress” towards it (under the ECF of the PRGT; RST Board paper, ¶21 and ¶33), with the exception of BoP needs directly stemming from RSF-supported RMs (see Box 1, ¶38). - If additional BoP needs emerge during the program period, they should be addressed through augmentation of access under the UCT program and policy adjustment, and not through RSF financing. ### Presentation of RSF financing in program documents - RSF financing should be shown below the line, along with reserves, and illustrated separately from Fund financing under the UCT program, after closure of any exceptional financing need. - International reserves should be shown to remain adequate and fiscal gaps closed through the program horizon without RSF financing. - Any measurable impact of RSF-supported reforms on BoP or fiscal projections should be accounted for in program documents and in the macroeconomic projections. - If there are direct costs from RMs, the additional financing gap can be financed by RSF disbursements—presented as prospective financing that is separate from other IMF financing. ### Member’s capacity to repay and debt sustainability safeguards - All Board documents for RSF financing requests and augmentations must include analysis and discussion of: - (i) an extended CtR analysis that covers the RSF repayment period, taking into account all Fund borrowing by the member; - (ii) debt risk analysis over a longer time horizon (up to 20 years); and - (iii) the composition of public debt, including the share of de facto senior debt. - Program documents for a new RSF arrangement or an augmentation of access should include standardized CtR “dashboard” charts for the RSF repayment period (20 years) illustrating: - evolution of total projected credit outstanding to the Fund (PRGT+GRA+RST); - debt service to the Fund in relation to key economic metrics; - comparison with available data from past Fund financing arrangements. - Dashboards are prepared by Finance Department (FIN) and provided to country teams; they are additional to the standard CtR table and intended to inform the bottom-line CtR assessment. - When financing requests produce comparatively elevated levels of key CtR indicators, program documents must examine the severity of risks and explain how RSF design—including access and phasing, and the accompanying UCT program—seeks to mitigate these risks. - Debt must be assessed as sustainable over the medium term for staff to recommend and the Board to approve: - a new RSF request, - augmentation of access, and - completion of reviews under RSF arrangements. - Teams should conduct a rigorous debt sustainability assessment using established frameworks—Low-Income Country (LIC) Debt Sustainability Framework (DSF) and Market Access Country (MAC) Sovereign Risk and Debt Sustainability Framework (SRDSF). - Include the natural disaster stress test if applicable, and cover long-term risks by including the entire 20-year horizon in the LIC DSA and the long-term modules in the MAC SRDSF (unless better alternative estimates are available) on long-term amortizations, demographic developments (including their impact on health and pension-related expenditures), and climate change (including mitigation and adaptation expenses). - Country teams for LICs and MACs are expected to use tools and customize existing frameworks to discuss: - (i) the adverse effects of climate change on debt sustainability; - (ii) the potential costs and benefits of climate action; and where applicable (e.g., hydro-carbon exporters) - (iii) the debt sustainability implications of global decarbonization efforts. - The discussion of debt sustainability, including climate-related macro developments and risks, should be included in the main text of Policy Notes (PN) and SRs as well as in the DSA annex (Annex IV). ### RSF arrangement design and diagnostics for qualifying challenges - RSF arrangements should support strong RMs that enable significant progress towards strengthening the member’s prospective BoP stability by reducing macro-critical risks associated with qualifying longer-term challenges. - RMs should be: - grounded in solid diagnostics (Section A); - strengthen prospective BoP stability and reduce macro-critical risks (Section B); - fully owned by the authorities; and - enable deep and lasting reforms (Section C). - Assessment of qualifying longer-term challenges needs to be underpinned by diagnostics from a variety of external and/or internal sources; no single diagnostic is mandatory. - Teams are encouraged to use available analytical products when designing an RSF arrangement, including: - Climate change diagnostics: WB’s Country Climate and Development Report (CCDR) and Climate Change Knowledge Portal, IMF’s Climate Policy Diagnostic (CPD; see ¶19), and Climate Public Investment Management Assessment (C-PIMA) (Box 2). - Pandemic preparedness diagnostics: Universal Health and Preparedness Reviews (UHPR), State Party Annual Reports (SPARs), Joint External Evaluations (JEEs), National Action Plans for Public Health Security (NAPHS), WB Pandemic Preparedness Assessments and Public Expenditure Reviews, Health Financing Progress Matrix Assessments (HFPM), National Health Accounts (NHA), and reports from regional health agencies. - Fund surveillance and capacity development products: Article IV and Selected Issues papers, Financial Sector Assessment Program (FSAP), Fiscal Transparency Evaluations, Fiscal Safeguards Reviews, and Governance Assessments. - Authorities’ own diagnostics and plans, including costed investment plans; country teams should discuss underlying assumptions with the authorities and partners. *Source: ppea2023051 - Box 1. Balance-of-Payments N eeds Under the RSF* ### 18. Additional diagnostics and quality control. The above list is non-exhaustive, and teams ### 18. Additional diagnostics and quality control ### Diagnostics and quality standards - The above list is non-exhaustive; teams are encouraged to consider additional available country-specific information, including feasibility relative to political economy and capacity considerations. - All diagnostics should meet minimum quality standards in terms of analytical soundness, objectiveness, and realism; they should be grounded in empirical evidence when possible. - Diagnostics should come from reputable sources, including international organizations and other official development partners (e.g., Regional Development Banks, and other multilateral institutions), peer-reviewed published research articles and other sources of comparable quality. - Whenever possible, RSF arrangements should rely on findings validated by multiple independent diagnostics. ### Support from IMF Functional Departments (FD) - FDs can support country teams in assessing and/or supplementing diagnostics (Box 2; ¶76-77). - If quality assessment of external diagnostics is outside Fund expertise, teams should seek to discuss it with the WB. - When existing diagnostics are incomplete or missing, or more targeted assessments are needed: - Fiscal Affairs Department (FAD) can provide guidance on identifying alternative climate documents and/or appropriate diagnostics to be undertaken, such as a brief country-specific overview of key climate issues and cross-country comparisons. - Monetary and Capital Markets Department (MCM) can help identify key challenges to private green investments, key climate-related financial risks, and design steps to address them. - Legal Department (LEG), together with MCM or FAD, can support development of legal frameworks in line with best practices (e.g., central banking, financial sector oversight, PFM, C-PIMA and tax). - STA can support the development of climate statistics. - FAD, Institute for Capacity Development Department (ICD) and Research Department (RES) can help with modeling of the macroeconomic implications of various climate policies. - RSF arrangements should draw on validated findings and, where appropriate, FD inputs to supplement country diagnostics. *Box 2. Useful Resources to Inform Climate-Related RSF Design (selected highlights)* - Key country diagnostics include: - CPD (IMF). The IMF’s Climate Policy Diagnostics (CPD) is a broad climate policy diagnostic that FAD is rolling out to support RSF requests and inform the design of reform measures through a tailored diagnostic focusing on key macro fiscal issues. The CPD covers mitigation, adaptation, policies as well as enabling institutions, including by applying Climate Policy Assessment Tool (CPAT), which helps to assess, design, and implement climate mitigation policies. An IMF assessment needs to be requested by the country authorities. FAD (with other functional departments where relevant) conducts the country-specific assessment. - C-PIMA (IMF). The C-PIMA provides an assessment of a country’s strengths and weaknesses related to the integration of climate considerations into PIM, and provides a sequenced and prioritized action plan to support implementation of green and resilient infrastructure. An IMF assessment needs to be requested by the country authorities; FAD then develops the country-specific assessment. - Diagnostics and tools from development partners and other stakeholders: - CCDR (WB, ongoing roll-out across IBRD/IDA countries). CCDRs integrate climate change and development considerations and help prioritize actions to reduce GHG emissions and boost adaptation while delivering broader development goals. - WB’s Climate Change Institutional Assessment (CCIA) identifies strengths and weaknesses of the country’s institutional framework for managing climate change challenges. - Climate Change Knowledge Portal (WB) provides climate-related risk profiles for many countries. - Climate Public Expenditure and Financial Accountability (PEFA) (WB, European Union (EU)). The Climate PEFA assesses climate responsive public financial management, broadly equivalent to the C-PIMA. - Additional IMF resources: - Analysis on the impact of climate change on macroeconomic and financial stability is available in IMF working papers, staff climate notes, staff discussion notes, departmental papers, and regional and flagship publications. - ICD and SPR, in collaboration with FAD and RES, organize a Community of Practice on Climate Models and Macroframeworks for exchanging tools and best practices (intranet link for IMF staff). - The Fund’s Climate Change Indicators Dashboard contains useful climate-related data for macroeconomic and financial stability analysis. - Numeric note: As of end-September 2023, CPDs have been completed for Kenya, Jordan, Cabo Verde and Mauritania. --- ### B. Assessing Prospective Balance of Payments Stability Risks ### Challenges and tools - Risks to prospective BoP stability stemming from qualifying longer-term structural challenges can be difficult to assess. - Diagnostic tools listed in Section A, combined with other Fund tools (including the DSA framework and models like the Debt-Investment-Growth and Natural Disasters (DIGNAD) (Box 3)), can inform the discussion of associated risks and the longer-term macroeconomic outlook. - Existing climate strategy or pandemic preparedness-costing exercises may be referenced in the SR but should be carefully vetted and evaluated against staff’s own analysis. ### Program documentation expectations - Program documents should discuss the longer-term macroeconomic outlook, while acknowledging uncertainties. - In justifying an RSF request, teams should strive to: - (i) illustrate and quantify macro-critical risks associated with qualifying challenges to prospective BoP stability in the narrative of the macroeconomic framework and the DSA26 to the extent possible; and - (ii) provide an illustration of the benefit of the RSF arrangement where feasible (e.g., by demonstrating how the RSF arrangement help mitigate challenges to prospective BoP stability). - When the RSF substitutes for more expensive financing, teams should quantify how much debt service is saved by the cheaper terms of RSF financing compared to alternative sources and how these savings would augment buffers to strengthen ability to face shocks linked with qualifying structural challenges. - Staff should explicitly acknowledge the uncertainty inherent in quantifying costs of uncertain long-term events and long-term benefits of proposed RMs (see Box 3 and Annex IV). *Box 3. Providing a Macroeconomic Justification for RSF Arrangements (selected highlights)* - New IMF tools can help quantify macroeconomic impact of climate change and climate policies. - DIGNAD model allows staff to quantify the effect of natural disasters in small open economies and the benefits of investing in resilient infrastructure, increasing fiscal buffers, and improving public investment efficiency. Staff may rely on DIGNAD to substantiate assumptions underpinning macroeconomic projections and stress-test parameters in the DSA. - Climate Policy Assessment Tool (CPAT) is a spreadsheet-based model to assess, design, and implement climate mitigation policies, covering carbon pricing (carbon taxes and ETSs), fossil fuel subsidy reform, energy price liberalization, electricity and fuel taxes, methane fees, VAT harmonization, energy efficiency and emission rate regulations, feebates, renewable subsidies and feed-in tariffs, green public investments, and combinations of these policies. - For large G20 emitters, staff may use the IMF-ENV model to analyze scenarios for the transition to a low-carbon economy. - Leveraging Debt Sustainability Frameworks (¶16, Annex IV): - LIC-DSF and MAC-SRDSF frameworks allow staff to quantify risks to debt sustainability associated with qualifying structural challenges. - Tailored stress tests for natural disasters can illustrate risks to debt sustainability from climate events over the medium-term. - Alternative scenarios can show the cost of inaction and highlight how climate-related policies and financing, including RSF-linked financing, impact debt sustainability (e.g., higher investment spending can raise growth or limit long-term climate costs, and RSF funds can substitute more expensive financing). - Presenting a unified macro narrative: - Teams are expected to present a consistent macroeconomic narrative describing risks from climate change, endogenous interactions among policy actions, and debt implications rather than a stand-alone application of an individual model. - Different models can produce different results depending on methodology and assumptions; teams should provide appropriate caveats. - Sample cases (model applications): - DIGNAD applied to Bangladesh and Rwanda (CR 23/66 and 22/381) shows substantial benefits from scaling-up climate-resilient infrastructure and improving public investment efficiency: real GDP and public debt become more resilient to natural disasters. - In Bangladesh, the DSA showed that additional climate investments financed by RSF disbursements would reduce the present value of debt by substituting for more expensive financing. - In Kenya (CR 23/266), the DSA illustrates the economic and fiscal impact of climate change and how RSF-supported reforms help limit risks to debt sustainability. --- ### C. Designing Strong Reform Measures ### Definition and principles - A strong RM is defined as a single policy action or a set of closely related policy actions that make significant progress towards reducing risks to prospective BoP stability from qualifying longer-term structural challenges.27 - When an RM includes a set of closely related policy actions, the underlying policy objective should be clearly identified and discussed in program documents. - RSF conditionality focuses on improving prospective BoP stability (not resolving current BoP problems). General principles guiding RSF reform design include: national ownership, tailoring of RM to member’s circumstances, clarity in specification of RM, and effective coordination with other multilateral institutions. ### Grounding and consistency - Strong RMs should be grounded in solid diagnostics. RSF requests should be supported by high-quality country climate, legal and policy diagnostics (¶17-19, Box 2), including benchmarking to countries in similar circumstances where feasible. - To assess reform-package strength, the member’s broader policies should be consistent with RST objectives. RM package strength can be compromised if conflicting policies exist (e.g., destruction of primary forests, fossil fuel exploration in protected areas). In such cases, the member’s broader policy package may not qualify for an RSF arrangement or to complete an RSF review. - RMs should support the country in achieving or surpassing international climate commitments, such as Nationally Determined Contribution (NDC) goals. ### Characteristics: critical, ambitious, and deep31 - Criticality: - RSF conditionality should support only reforms that are key to reducing risks to prospective BoP stability stemming from qualifying longer-term challenges. - Types of critical reforms depend on country circumstances such as climate vulnerabilities, income level, or institutional capacity. Measures should close critical policy, legal, data and institutional gaps in implementation of national climate and pandemic preparedness objectives. - Ambition: - Strong RM packages should aim for ambitious reforms that would be unachievable within the same timelines in the absence of an RSF arrangement. - PN/SR should provide details on reform objectives and expected outcomes, including benchmarking against peers where possible. - Examples: - Carbon pricing reforms should elaborate on proposed price path (initial price and target price to be reached in X number of years) and sector coverage, demonstrating ambition relative to peers. - Strong energy subsidy reform would announce a schedule for permanently phasing out subsidies and implement at least the first stages of the phase out. - Adaptation measures should be structural (e.g., changes in building codes, measures to substantially reduce major disaster risks such as flood defenses regulations applicable across all coastal/vulnerable areas). - Preserve country ownership to reduce risk of reversal. - Depth: - RMs should pursue high-depth reforms: “reforms that lead to permanent institutional changes, such as by involving legislative changes (parliamentary approval), or conditions with long-lasting impact” (2018 RoC, Appendix II, ¶2). - Medium-depth reforms that “lead to a significant change but are one-off in nature (e.g., a one-time change in tariff rates as opposed to institutionalizing an automatic tariff adjustment mechanism)” can also be part of an RM package. - Alignment with existing legal frameworks, clear regulations and effective implementation are important for intended impact. - Low-depth reforms (feasibility studies, diagnostics) should not be stand-alone RMs except in exceptional and well-justified cases (¶26). When authorities’ climate policies are undeveloped, comprehensive and costed climate strategies, time-bound action plans and improved accountability frameworks may be part of RSF conditionality but should be part of a package of much stronger RMs; their inclusion should be clearly motivated and will affect access level discussions (¶38). *Footnotes and references in the source:* - 26: Guidance on how the DSA framework can inform the macro-economic narrative; DSA requirements for country teams are spelled out in Annex IV. - 27: 2022 RST Board Paper, Supplement 1 -- RST Instrument. - 28–33: Relevant references to prior operational guidance notes, Reviews of Conditionality (RoC), and supporting explanations used within the source. *Resilience and Sustainability Facility — Operational Guidance Note (excerpt).* ### 26. Strong RMs should be tailored to country circumstances and aligned with ### 26. Strong RMs should be tailored to country circumstances and aligned with ### Tailoring RMs and sequencing - Strong RM packages should take into account the country’s institutional environment and implementation capacity. - Sequencing of reforms is crucial, especially in Fragile and Conflict-Affected States (FCS), Small Developing States (SDS), and Low-Income and Developing Countries (LIDCs) where capacity is often severely constrained and extensive reforms may already be underway, including under the UCT program. - In capacity-constrained cases, "a more gradual approach may be needed (Box 4)." - If the country requires technical assistance (TA) for designing and/or implementing reforms, the RSF design should allow sufficient time and resources for the IMF and other partners to provide the needed TA during the program. ### Design, monitoring, and documentation of RMs - RMs should be drafted as specifically and clearly as possible, identifying: - Responsible entities (e.g., Ministry of Finance (MOF), Parliament, energy regulator). - Specific actions required for RM completion (e.g., enactment of legislation, publication/enactment of regulations, codes, etc.). - Targeted completion date (¶54-55). - When details are too long for the main RM formulation, they should be described in the Technical Memorandum of Understanding (TMU). - Completion date of legislative or other measures should normally match the implementation date of the entire reform; if full implementation extends beyond the RSF horizon, the RM should include a clear indication (enshrined in applicable legislation) of the timeline for full reform implementation. ### What should not be stand-alone RMs - Reforms that do not meet the above principles should normally not be considered as stand-alone RMs; they can be mentioned in the MEFP/PS. - Examples of items not normally suitable as stand-alone RMs: - Developing plans/strategies that are narrow in focus or lack clear implementation milestones. - Conducting research, technical and feasibility studies (except climate-smart feasibility studies for public investment projects, which can be part of climate-smart PIM-related RSF-supported RMs). - Institutional, regulatory, or legislative changes that are mere prerequisites to policy reforms. - Co-benefits beyond climate (e.g., access to electricity through off-grid renewables) are not sufficient to justify RMs diverging from the principles, though they may justify prioritization. ### Box 4 — RSF conditionality for FCS and SDS (key points) - FCS and SDS are disproportionately affected by climate change and pandemics, face larger economic costs, and have limited capacity and room for policy responses, making RSF relevant for building resilience. - Particular attention to RM design is needed given significant capacity constraints. - Parsimonious use of conditionality and careful prioritization of reforms addressing key climate/pandemic preparedness challenges is especially important. - Solid preparation involving close coordination with stakeholders and comprehensive diagnostics is especially important. - Intermediate steps (often requiring Capacity Development (CD) support) may be formulated as RMs if properly sequenced, tailored to needs and absorptive capacity, and aligned to a broader engagement strategy delivering sufficiently strong reforms within the RSF duration. - The climate annex should include greater detail to help prioritize and sequence reforms. - Access needs should be carefully calibrated and reflected in tentative timelines; ownership, transparency, and accountability are particularly important. - Incremental steps of complex reforms could be justifiable as RMs in FCS or SDS with limited capacity; they would be considered low-depth reforms and should be part of a package of stronger RMs. Access could be backloaded to reflect additional time needed to complete full reforms. ### Synergies with UCT program and dual-purpose reforms - Reforms targeting macroeconomic stabilization should generally be part of conditionality under the UCT program, even if they affect RSF structural challenges. - RSF-supported RMs should focus on reforms primarily targeting the structural challenge addressed by the RSF arrangement. - Conditionality under the UCT program and RSF-supported reforms can be closely aligned to leverage synergies. Examples: - One-off changes in administered prices to reduce fuel subsidies may be UCT conditionality to address immediate BoP needs; an RSF RM could build on this to establish market-based fuel pricing. - Reforms deepening local capital markets in a UCT program can increase availability of private capital for climate-related investments. - Measures to address structural governance weaknesses and corruption vulnerabilities would be best placed in the UCT program, but RSF RMs could include governance measures if specific and critical to RSF objectives (Annex VI). - Dual purpose reforms: a single measure can be part of both UCT conditionality and an RSF RM when it is key to success of both; under such cases, RMs should be specified identically for both the UCT program and RSF arrangement. - The UCT arrangement must close the residual financing gap, even considering dual purpose reforms, without recourse to RSF financing; exception could be RMs that trigger specific BoP costs. ### Scope of Fund expertise and coordination with partners - Reform packages should emphasize measures in core areas of Fund expertise; reform design and monitoring can be more challenging in non-core areas. - Teams should coordinate with multilateral institutions and development partners to explore synergies and use their comparative advantage, while keeping RMs within the Fund's area of expertise. - Other institutions can provide capacity development in support of RM implementation, provided IMF staff can independently assess eventual implementation (no cross-conditionality). ### Policy additionality, parsimony, and catalytic effect - RSF design should ensure policy additionality: RMs should: - Spur additional reform efforts compared to a no-RSF scenario. - Mitigate facility shopping distinct from GRA and PRGT arrangements (¶12-13). - Avoid duplication of conditionality with other development partners. - In exceptional cases, reforms already planned but facing implementation issues or long timelines can be considered as RMs if RSF conditionality will significantly accelerate implementation (such cases should be rare and carry a significant burden of proof). - RM packages should be parsimonious: strength is not measured by the number of RMs; focus should be on fewer key reforms. - Strong RMs would typically have a catalytic effect and help lift barriers to private climate- and health-related investment; many objectives are not attainable without mobilizing significant private finance. ### Reporting requirements: PNs, SRs, and reform matrices - PNs and SRs should connect key longer-term structural challenges to specific RMs and summarize diagnostics and partner involvement. - For climate-related RSF arrangements, a climate Annex should be included in PNs and SRs describing climate challenges/vulnerabilities and authorities’ plans and initiatives, including key past or ongoing reforms and major projects. - A reform matrix (Table 1) should associate each RM with a diagnostic (e.g., CCDR, CPD, C-PIMA), describe CD delivery, expected RM outcomes, and outline role of development partners. - A separate table (Table 2) should summarize development partner involvement in key areas not covered by RSF-supported reforms to illustrate synergies and complementarities; the table is not exhaustive and is not meant to agree on a Joint Policy Matrix. ### Determining access levels (Section D) - Access to the RST is guided by the norm of 75 percent of quota, and is capped at the lower of 150 percent of quota or Special Drawing Rights (SDR) 1 billion (¶46 and 47, RST Board paper). - The norm is neither a floor nor a cap, but an operational anchor given difficulty in assessing BoP implications of RSF-supported reforms. - Generally, access up to the norm does not require additional justification beyond qualification criteria. - Justification for access above the norm may be considered based on: - (i) short- to medium-term BoP needs directly associated with implementation of RSF-supported reforms, - (ii) strength of the package of RSF-supported reforms, - (iii) capacity to repay the Fund, taking into account debt sustainability, debt carrying capacity, and composition of debt (¶47, RST Board paper). - Process for assessing access above the norm (Figure 1 summary): a) Assess country’s capacity to repay the Fund (CtR). CtR must be at least assessed as "adequate" for any level of access under the RSF (¶15). Access is expected not to exceed (and could be below) the norm if CtR risks are heightened. b) Assess strength of the reform package. Teams should demonstrate criticality, ambition, and depth of RMs (¶25) and, where feasible, quantify expected impact of key RMs (Annex V). If CtR is adequate, an exceptionally strong package can qualify for higher-than-normal access without needing (c). c) BoP financing needs directly associated with RMs. Higher-than-normal access may be granted for current BoP needs triggered by RM costs, provided CtR is met and the reform package is at least strong. Costs must be measurable, discrete, incurred during the program period, and included in macroeconomic projections—keeping in mind RSF arrangements cannot earmark financing for specific projects (¶8-9 and Annex II). - Examples of eligible costs: additional imports for solar/wind expansion (mitigation), costs for climate-resilient agriculture or seawalls (adaptation), increased cash transfers accompanying energy transition measures. - Costs that are poorly defined, uncertain, or covered by other sources (e.g., parallel WB lending or the private sector) do not necessarily justify access above the norm. *RESILIENCE AND SUSTAINABILITY FACILITY—OPERATIONAL GUIDANCE NOTE* ### 39. Augmentation of access or repeated access to resources under successor RSF ### 39. Augmentation of access or repeated access to resources under successor RSF ### Augmentation of access and successive RSF arrangements - Augmentation of access or repeated access to resources under successor RSF arrangements are both permitted, subject to the maximum access cap. - Some members may face capacity constraints implementing RMs that are both comprehensive and ambitious; in such cases: - Implementation of ambitious reform packages can be supported through two or more successive RSF arrangements—where subsequent requests complete the reform agenda, building on the reforms in the initial RSF arrangement. - RMs can be added during the RSF arrangement (for example, as new diagnostics become available or new political impetus makes implementation possible). If these RMs strengthen the program considerably, they may justify augmentation of access. - The two-stage approach with subsequent augmentation or a successor RSF arrangement—subject to resource availability, staff agreement, and Board approval—could be considered when: - some diagnostics that could underpin a stronger reform package are not available initially; - time is needed to build political capital and secure ownership for more ambitious reforms; - the authorities’ reform plans are not yet well developed and costed; - implementation capacity constraints suggest it would take longer to implement a full set of reforms that can justify above-normal access. ### The catalytic role of the RSF - Financing needed to address longer-term qualifying challenges generally cannot be provided without mobilizing the private sector. - Reform synergies with other IFIs can facilitate larger official financing packages and access to climate funds. Parallel financing from official bilateral and multilateral partners (based on their projections) should be highlighted in the SR. - Challenges for EMDEs in attracting private capital include: - perceived risk-return profiles misaligned with investors’ risk bearing capacity for countries with elevated macroeconomic, regulatory and policy uncertainty; - weak governance and corruption; - limited technical capacity; - lack of high-quality comparable data needed for investment decisions; - lack of standardized environmental, social, and corporate governance (ESG) products; - absence of robust pipelines for investable projects in many EMDEs. - The accompanying UCT program: - provides a critical anchor for development partners and private investors; - buttresses macroeconomic and financial stability, improving investor confidence; - can include reforms that improve the overall regulatory environment (e.g., strengthen financial institutions, deepen domestic financial markets, improve predictability of legal and regulatory environment such as energy market regulation) to attract longer-term private investment. - Staff responsibilities: - discuss authorities’ needs and plans to attract private finance and how they plan to boost the signaling effect of the RSF arrangement; - anchor discussions on the broader climate strategy of the authorities, which should be as clear and specific as possible and include a description of longer-term investment plans. - RSF arrangements can signal strong and credible climate ambition and increase clarity on longer-term policy commitments. ### How RSF-supported reforms can attract additional climate finance - Integrating climate considerations in policy frameworks: - RSF arrangements help countries integrate climate issues into public finance policy frameworks (PFM, PIM) and public procurement frameworks (with support from the WB). - PIM measures can facilitate creation of a pipeline of investable projects for the private sector. - Climate budget tagging can facilitate finance flows; where budget tagging is in place, authorities can choose to commit to devoting a minimum share of the budget to supporting green investments and to report regularly and transparently on progress in implementation of supported projects (¶ 9). - Integrating climate-related risks into financial stability frameworks (incorporating climate risk considerations into regulation and supervision frameworks and into banking sector risk assessments) can increase capacity to quantify and mitigate climate-related financial risks. - Realigning relative prices: - Where emissions mitigation is a key goal, reform measures would ideally include reducing energy subsidies or adopting carbon taxes or feebates to help attract additional climate finance. - Non-price measures: - Establishing strong PPP frameworks or frameworks for green-bond issuance and trading. - Legal, regulatory and institutional reforms to improve data collection and coordination; clear regulatory bottlenecks; advance permitting reforms; expedite project review processes; improve risk management practices; and enhance governance. ### Engaging development partners, private investors, and stakeholders - Staff should consult development partners, private investors, and other stakeholders early in diagnostics to identify reform measures that reduce barriers to climate finance. - Engage early with IFIs, including the WB and regional development banks, and other stakeholders to identify policy reforms that could support climate finance. - Strong public-private sector coordination is essential for identifying policy hurdles and effective measures to alleviate constraints on scaling up private climate finance. - Examples from pilot cases: - Authorities have explored options to crowd in private investments and/or reduce risk (Barbados, Rwanda, Costa Rica, Jamaica and Bangladesh). - Authorities have used public resources to incentivize additional climate investments through risk-sharing, blended finance, and other financial tools. - Country teams should flag contingent fiscal liabilities associated with public provision of credit enhancements for private investments and advise authorities to consider benefits and risks carefully. - Any initiatives that utilize public resources should have appropriate governance structures and processes for project selection, impact reporting, monitoring, and verification in line with best practices. - IMF role and limits: - RSF-supported RMs can help authorities adopt effective climate policies, strengthen governance, PFM, and accountability frameworks, and provide capacity development advice. - IMF teams should convene relevant stakeholders to explore ways for the RSF to catalyze scaling up climate finance. - The Fund cannot seek to mobilize climate financing on behalf of the member, act as a financial advisor, be involved in management or oversight, nor vouch for the bona fides or success of any climate finance vehicle, fund, or project. The Fund’s focus is policy advice to support an enabling environment for productive investments. ### Box 5 — Illustrative cases: Rwanda and Barbados - Rwanda: - Adopted a programmatic approach via its green investment facility, Ireme Invest, set up by the Rwanda Green Fund and the Development Bank of Rwanda. - In the weeks following the RSF arrangement, development partners, including AFD and EIB, committed to scale up climate financing with budget support, technical assistance, and long-term low-cost loans. - Initiative expected to fund a pipeline of projects estimated at EUR 400 million, including EUR 130 million in equity contributions from private investors. - Government of Rwanda prepared to scale up equity of the Development Bank as the pipeline expands. - Barbados: - Used part of fiscal space created by the RSF to provide equity capital for a new Blue Green Bank to lend to the private sector for investments in affordable green homes, hurricane-resilient roofs, and electrification of transport, among others. - The Bank is supported by additional capital from the Green Climate Fund. - Low-cost, long-term financing instruments and grants from development partners will support public investment in water, sanitation, and flood and coastal protection projects. - Development partners will help increase authorities' capacity and expertise in PPPs to attract private investment for resilient infrastructure. ### Coordination with expert stakeholders (WB, WHO, other partners) - Coordination with the WB and other expert stakeholders is crucial throughout RSF design and implementation. - IMF and WB seek complementarity and synergies in climate-related work as outlined in the September 2023 Joint Statement of the IMF Managing Director and the World Bank President. - IMF teams preparing RSF arrangements are encouraged to coordinate with the WB and reach out to reputable external partners, including other international organizations, leveraging outside technical and sectoral expertise while ensuring complementarity of interventions. - Compliance with the Fund’s policies on protecting confidential information is required at all times (Annex IX of the 2014 Guidance Note on the Fund’s Transparency Policy). Mission chiefs should ensure confidentiality of IMF-member discussions, consulting with LEG and SPR as needed. - Specific coordination frameworks: - A well-defined coordination framework with the WB on addressing climate challenges exists; principles for coordination are laid out in Annex III and ¶76-77 of the RST Board paper and focus on cooperation in diagnostics, reform design, and assessment of climate policies. When engaging the WB, mission chiefs should first contact the Country Director to coordinate sectoral work. - A similar coordination framework on pandemic preparedness exists with the WHO, though it is less tested. Good coordination between WB and IMF teams is strongly encouraged in pandemic preparedness. - Fund and WHO staff are expected to share available diagnostics and analyses (e.g., Selected Issues Papers) and engage early on potential reforms (e.g., National Action Plan for Health Security, ¶ 17). - Avoiding cross-conditionality: - Policy measures can be included as RMs only if staff can monitor and verify implementation independently and the Executive Board can assess implementation regardless of other institutions’ conclusions. - Assessment Letters: - The WB provides an Assessment Letter (AL) on authorities’ broader climate and/or pandemic preparedness policies for information ahead of RSF arrangement approval. - When requesting an AL, IMF country teams should share available information on likely reform areas for RSF support. For reviews assessing RM implementation, ALs can be a streamlined update of the previous AL. - Cooperation with other development partners: - Engagement and cooperation with other expert stakeholders are encouraged to develop diagnostics and explore synergies in supporting the member’s climate agenda. - When external experts participate in RSF-related discussions and are not bound by contractual relationships with the IMF, staff should be mindful of sensitivities and always seek authorities’ consent for participation of external experts, while maintaining confidentiality of discussions and protecting confidential information. ### RSF phasing, reviews, and disbursement modalities - Reviews of RSF arrangements are synchronized with, and conditional on completion of, the concurrent UCT program review (¶58, RST Board paper). - RSF disbursements cannot be a substitute for financing through a Fund-supported program and can only occur in the context of an on-track UCT-quality program. - If a UCT program review is delayed, the accompanying RSF arrangement review is also delayed. - The RSF arrangement automatically terminates when the UCT program expires or is cancelled; all RMs must be implemented before the last review date of the UCT program. - If an RM is not implemented in time for a review, it will be assessed at the next UCT program review (¶57). - If parliamentary approval is needed for a member to request RSF financing, it should be in place before IMF Board approval of the RSF arrangement. - Phasing of disbursements: - Phasing linked to timing of RM implementation; each RM specifies a tentative implementation target date and an availability date which is the earliest date the Board can review RM implementation and make the associated disbursement. - RSF disbursement availability dates normally mirror those of the accompanying UCT arrangement, but later dates are possible if justified. - Availability dates must be set sufficiently ahead of expected Board meeting dates to allow monitoring, assessment, and reporting to the Board. - Teams must specify proposed phasing of disbursements in the SR at the time of the RSF financing request; normally phasing would be even across RMs. - One or more RMs and disbursements could be linked to a single review, but when originally phased, RSF disbursements available upon completion of a single review should not exceed 50 percent of quota. - No RSF disbursement is available upon approval of an RSF arrangement, and measures implemented before Board approval cannot be part of the RSF arrangement. - RSF disbursement availability and assessment: - RSF disbursements become available following completion of a review assessing RM implementation. - Substantive assessment: the RM must be implemented in its entirety to be assessed as met; no waiver of non-observance is possible under an RSF arrangement. Minor deviations relative to Board-approved RM design could be acceptable if the reform is substantively implemented and the objective is met; other changes would not be considered “minor”. - Capacity to repay: SRs for RSF reviews require a paragraph with a bottom-line CtR assessment informed by a CtR table covering the RSF repayment period. The CtR dashboard is optional unless there are substantial changes to the macroeconomic framework. - Timing of RM implementation, reporting, and disbursement: - RMs need to be implemented in time for staff assessment and reflection in the SR or in a Supplement, provided Executive Directors have enough time to form their own view. - RSF disbursements must be requested within 30 days of the completion of the Board review. Teams should remind authorities of this requirement. - If a member does not request disbursement within 30 days of review completion, disbursement may only be requested upon completion of the next review. - Additional phasing flexibility notes: - In cases where alignment with the UCT program availability date would imply unrealistic RM implementation timelines, different availability dates could be set under the RSF arrangement, provided Board assessment of the RSF-supported RM occurs at the same time as a scheduled UCT Program review and adequate time is provided for assessment and reporting. - Example: if an RSF arrangement is requested at the first UCT Program review and the availability date for the second UCT review is too close to ensure timely RM implementation and assessment, RSF availability dates could be set after the UCT availability date but before circulation of the SR for the second UCT review and first RSF review. - An exception to even phasing could be an RM entailing specific near-term BoP costs; the disbursement for the review that includes this RM could be larger. - Ex post, a disbursement can exceed 50 percent of quota in the case of delayed reform implementation. _Italic: ppea2023051 - 39. Augmentation of access or repeated access to resources under successor RSF_ ### 57. Delays in the implementation of RMs. The target date for RM implementation is only ### Delays in the implementation of RMs ### Implementation timing and Board assessment - The target date for RM implementation is only indicative. - If a RM is implemented later than the tentative target date but in time to allow proper staff assessment and before the circulation of the SR to the Board: - the RM could be assessed as implemented by the Executive Board and the disbursement would take place upon completion of the relevant review. - If delays prevent a timely assessment: - the assessment of the RM would need to be conducted at the next review to unlock the associated disbursement at that time (¶59). - Regardless of the target date, a RM will be assessed at the UCT program review following: - (i) the implementation of the RM, and - (ii) after the relevant availability date has passed. ### Modification to the reform package and access effects - RMs can be modified, dropped or added by the Executive Board, but only in the context of reviews. - Changes in the reform package can affect access levels: - Dropping one RM will make the associated disbursement unavailable, reducing the amount of total RSF access by a corresponding amount, unless the dropped RM is replaced by another RM. - In rare cases where the new RM is much stronger than the dropped one, total access may increase. - Modified or additional RMs must be in line with the principles for strong reform measures. - Modification can entail different target implementation and availability dates; in which case access would be rephased. ### RSF arrangement rephasing modalities and access limits - Rephasing (adjusting the dates on which RST financing becomes available) can take place to realign the RSF arrangement with: - modifications or delays in reform implementation, or - the phasing of the UCT program. - Rephasing should be requested by the authorities in the Letter of Intent (LOI) and supported by staff in the SR, then approved by the Board. - Rephasing features: - Rephasing of access to later reviews is possible if deemed appropriate by the authorities and staff and approved by the Executive Board. - Access associated with the delayed review would not count towards the 50 percent access limit per review. - Rephasing to take into account earlier implementation of RMs is possible; RMs can be brought forward to earlier (future) reviews. - Access associated with the early implementation of a RM would count towards the 50 percent access limit per review. - Modifications or additions to RMs cannot be made at the time of the related review (the Board cannot modify and assess a RM at the same time). - Bringing forward availability dates for completed RMs ahead of the original phasing to allow for an earlier RSF disbursement, at the same time as the request for rephasing, should be exceptional and well-justified. - Staff should demonstrate that the additional financing made available through the earlier RSF disbursement is not intended to cover any UCT program financing gap. - Total RSF access made available for the review, including the rephased RM, should not exceed 50 percent of quota. ### Phasing and reviews for non-disbursing or precautionary facilities - For an RSF arrangement accompanying a two-year FCL arrangement: - the single mid-term FCL review would be a combined review under the FCL/RSF arrangements, with standalone RSF arrangement reviews for the residual RSF disbursements (all RSF reviews should be completed prior to the expiration of the FCL arrangement). - For PLL/RSF requests: - only PLLs with a residual duration of at least 18 months would meet the length requirement of a qualifying UCT program for an RSF arrangement. - RSF reviews and disbursements would generally take place concurrently with PLL reviews, with availability dates providing sufficient time to allow for assessment of the relevant RM(s) at the Board meeting. - PLL arrangements provide rolling 6-month access upon approval and following reviews; the final RSF disbursement/review would need to be linked to the last PLL review. - For parallel PCI/PSIs and FCLs that do not have scheduled disbursements, the RSF arrangement would identify availability dates linked to scheduled reviews or stand-alone RSF arrangement reviews. - Operational note on timing: - the 30-day rule operates in a more restrictive manner than most Fund financing as the undrawn disbursements cannot be made available until the following review (and are forfeited if not drawn within 30 days of completion for the last review). ### Safeguard modalities and post-financing monitoring - Safeguards Policy: - A safeguards assessment is required under the concurrent UCT program, including the PCI and PSI, but no separate safeguards assessment is required for RSF financing. - Post-Financing Assessments (PFA) and Article IV consultations: - Under the PFA policy, an assessment is expected for members that are not in a Fund arrangement and where combined GRA/PRGT/RST credit outstanding exceeds 200 percent of quota. - A nominal threshold—set at SDR 0.38 billion credit outstanding to the RST—also triggers the need for PFA. - Even where credit outstanding is below the threshold, the PFA policy provides the Managing Director with discretion to recommend the institution of PPM if developments suggest the need for closer monitoring of capacity to repay, particularly where developments call into question progress toward external viability. - This recommendation is typically made at the last review and captured in a Board decision. - Close monitoring of long-term RMs impact: - Where PFA is triggered, the evolution and impacts of reform measures and monitoring the member’s capacity to make repayments to the RST would be covered as part of the PFA. - In other cases, Article IVs are the main vehicle for covering issues raised in the context of RSF arrangements that remain macro-critical beyond the end of the program. - Article IV SRs would be expected to discuss RM-related issues and any deviations or regressions in RSF-supported reform implementation, in line with the macro-criticality criterion of the Integrated Surveillance Decision (ISD). - If developments during the repayment period require closer monitoring of the Member Capacity to Repay, staff may recommend a PFA to the Managing Director. - If residual BoP needs persist or a new BoP gap emerges, any follow-up UCT program would be expected to account for RSF repayments in assessments of debt sustainability and CtR. ### Misreporting framework and remedies - Misreporting under an RSF arrangement occurs either: - (i) when the member has received a noncomplying disbursement under an RSF arrangement as a result of inaccurate information being provided to the Fund which leads to an incorrect assessment that (a) an RM has been implemented when it has in fact not been implemented or (b) that the deviation in implementation of the reform measure was minor when in fact it was not; or - (ii) there is an Executive Board finding of misreporting at a concurrent review under the accompanying UCT program, which was not assessed as “de minimis” or waived by the Executive Board. - Consequences: - A noncomplying disbursement under the accompanying UCT program would also make disbursements made at the same time under the RSF arrangement noncompliant. - If misreporting arises solely due to the UCT program, the misreporting under an RSF arrangement is subject to the same limitation period that applies to the misreporting under the relevant accompanying UCT-program. - Procedures upon evidence of noncomplying disbursement: - The Managing Director (MD) will inform the member promptly. - If, after consulting with a member, a determination has been made that a member has received a noncomplying disbursement, the MD will promptly notify the member and submit a report to the Executive Board. - If the noncomplying disbursement was made no more than four years prior to the date on which the MD informed the member, the Board may decide either: - (a) that the member should make an early repayment of the disbursed amount, or - (b) no early repayment is required based on a determination that the objectives of the reform measure have been achieved because the deviation in policy implementation is minor (¶56). - If the Board calls upon the member to make an early repayment, the member will be expected to repay an amount equivalent to the noncomplying disbursement, together with any interest accrued thereon, normally within a period of 30 days from the date of the Executive Board decision. - For misreporting under ¶65(ii): - The misreporting framework applicable to the UCT program applies, with no separate or additional steps required for the RSF. - Members are expected to make an early repayment of the non-complying disbursement(s) under the RSF arrangement unless the misreporting under the UCT program is de minimis or a waiver of non-observance is granted by the Executive Board. - Transparency: - Relevant information on misreporting should be made public by including it in documents to be published after the Board discussion, such as a press release containing the Chairman’s Statement or summing up, with prior Board review of the text for publication. - Whenever the Executive Board grants a waiver for nonobservance under the UCT program or determines that the objectives of the RSF-supported RM have been achieved notwithstanding the misreporting, the discussion of misreporting will be included in the SR, though it will be deleted if the report is published. ### Overdue financial obligations and remedial strategy - The Managing Director will not recommend an RSF arrangement for approval by the Executive Board if a member country has overdue financial obligations to the Fund. - Where a member is in arrears to the Fund in the GRA, the Special Disbursement Account, or the SDR Department, or to the Fund as Trustee (including the PRGT and RST), the MD will not recommend and the Board will not approve financing, including an RSF arrangement, or completion of a review under an RSF arrangement, and any pending disbursements under an existing arrangement will be suspended until the arrears are cleared. - Should a member incur overdue financial obligations to the RST, that member’s access to the GRA and PRGT would also be suspended. - Strategy to prevent and remediate overdue financial obligations to the RST: - Three elements: prevention, intensified collaboration, and remedial measures. - An escalating timetable will guide the Executive Board in considering remedial measures of increasing intensity, taking into account the specific circumstances of the member. - Overdue obligations to the RST accrue interest at an interest rate equal to the applicable interest rate under the relevant tier structure, subject to a minimum interest rate charge of the SDR. - In protracted cases, remedial measures may include: - removing the member from the list of RST-eligible countries (6 months after emergence of arrears), and - declaration of noncooperation with the Trust (12 months after emergence of arrears). - Upon a declaration of noncooperation, the Fund could decide to suspend the provision of technical assistance to the member. - The framework allows and encourages prioritization of GRA repurchases and PRGT repayments (arrears clearance or periodic partial/small payments). ### RSF lending terms (key statistics) - RSF loans have a maximum maturity of 20 years with a grace period of 10½ years. - Principal repayments are made in 20 equal semi-annual installments that begin 10½ years after each RSF disbursement. - RSF borrowers pay a margin over the 3-month SDR interest rate (SDRi), differentiated across three groups through a tiered interest rate structure: - Group A: - pay a margin of 55 basis points above the SDRi up to a cap of 2¼ percent, - are exempt from any service charges on RSF loan disbursements. - These are all PRGT-eligible countries that are not presumed blenders. - Syria is included in Group A despite not currently being PRGT-eligible because Syria’s latest available GNI per capita is below the threshold for entry on to the list of PRGT-eligible members. - Group B: - pay a margin of 75 basis points above SDRi, - are subject to an upfront one-time service charge of 25 basis points on each RSF disbursement. - Includes all “presumed blenders” and all small states (below 1.5 million inhabitants) with per capita GNI below ten times the IDA operational income cutoff. - Group C: - pay a margin of 95 basis points above SDRi, - are subject to an upfront one-time service charge of 50 basis points for each RSF disbursement. - Includes all other RST-eligible countries (eligible non-small MICs and all small states with income above ten times the IDA operational income cutoff). - Margin structure and service charges are subject to reviews; the Board will review interest rates during each regular RST policy review but can also conduct earlier/ad hoc reviews. ### Operational considerations (pre-mission note) - Early experience with RST operationalization has shown the importance of allowing enough time to develop a well-designed program. - Table 3 and subsequent paragraphs in the source illustrate good practices developed during the pilot phase. *Source: RESILIENCE AND SUSTAINABILITY FACILITY — OPERATIONAL GUIDANCE NOTE (excerpts).* ### 75. Preparations for an RSF request should generally begin at least six months before the ### ppea2023051 - 75. Preparations for an RSF request should generally begin at least six months before the ### Preparation timeline and engagement - Preparations for an RSF request should generally begin at least six months before the PCM, with at least 24 to 26 months remaining in the concurrent UCT program. - Engagement with the WB — through the Country Director — should start in the early stages of preparation to distill available diagnostics and identify diagnostic gaps. - At this time, the team should also request an AL and communicate to the WB team the timeline for the PN (the WB should be invited to the Policy Consultation Meeting (PCM)), mission, and expected Board discussion. - Country teams may consider a staff visit to gather information on climate challenges and needed reforms that could inform the PN for a subsequent RSF request negotiation mission. - The preparation period can be shortened where RMs have been previously discussed with the review departments and may decrease over time as the Fund builds more experience with RSF requests. ### Country team-led preliminary discussion - Early discussions should include FDs, the WB and other development partners as appropriate to develop broad consensus on climate challenges and potential RSF goals covering: - (i) the climate policy landscape, - (ii) relevant climate work already undertaken or planned timeline for it—including Climate Change Policy Assessment (CCPA), Climate Macroeconomics Assessment Program (CMAP), CPD, C-PIMA, CCDR, and other support/CD from the WB and development partners, - (iii) broad reform areas under consideration and related capacity development needs, - (iv) potential cross-institutional synergies (avoiding overlapping CD across institutions), and - (v) the potential for the RSF to help attract additional climate finance. - To prepare a comprehensive reform matrix (¶ 35), teams will need to reach out to development partners to learn about their work on the respective longer-term structural challenge. - Examples of support that can be provided by functional departments at this stage: - FDs can share climate-related areas/questions for country team to explore. - If major climate products (CCDR, CPD, C-PIMA etc.) are not available or planned, Fiscal Affairs Department’s Climate Policy Division (FADCP) can provide guidance on identifying alternative climate documents and, if timeline and resources permit, put together a detailed “information note.” - If helpful: (i) FAD can provide a brief country-specific overview of key climate issues and (where available) cross-country comparisons and good practices; (ii) MCM could meet with the country team to discuss scaling up climate finance and potential climate-related risks to financial stability; (iii) ICD and RES can discuss models appropriate for assessing macroeconomic impact of climate policies; and (iv) STA can discuss potential climate data issues and gaps. ### Determination of FD support and diagnostics timing - The determination of the scope and timing of FD support should start ideally 6 months before the PCM to allow for resource planning. - Based on initial discussions, the country team will determine concrete climate CD needs and decide whether further FD support is needed (including whether a FD climate economist will join the team). - To allow sufficient time to develop strong RMs, climate CD diagnostic missions (if needed) should take place 2-3 months prior to the negotiation mission (an FD economist, if needed, would be assigned at that time as well). ### Use of diagnostics and climate CD for RM design - Available diagnostics and climate CD recommendations should form the basis for the design of reform measures and should be available when the team starts designing RMs, well ahead of the PN review. - The design of strong RMs typically requires close collaboration and discussions with the CD team; further FD CD may be needed to implement RMs through the course of the program. - Expected future FD support needs should be discussed as early as possible with relevant departments to facilitate planning. ### Early engagement with authorities - Country teams should engage early with authorities to understand their climate strategy and the latest NDCs, and identify the key agencies involved. - Staff visits preceding RSF/UCT negotiation missions can be used to present an early overview of reform areas being considered for inclusion in the RSF. ### Informal discussions with FDs prior to PCM (timing and deliverables) - Two months before the PCM: - Country team should present to relevant FDs: (i) key climate challenges/risks, plans, and initiatives (could share climate annex if ready), (ii) climate work already undertaken (including diagnostics and CD provided or planned by the Fund or other institutions), and (iii) initial thinking on the reform strategy. - Relevant FDs will share additional climate-related areas/questions for the country team to explore. - One month before the PCM: - Country teams could compile a list of potential RMs and MEFP commitments—based on climate CD and/or inputs of the team’s FD climate economist (if one was assigned). - Where appropriate, this list can serve as the basis for early feedback from the authorities on potential RMs and MEFP commitments. - Optionally, the Climate Annex could be shared with relevant FDs for informal comments a couple of weeks prior to PN circulation. ### RSF Reviews (purpose and process) - Pre-mission work for RSF reviews broadly follows the process for general UCT. - Primary purpose of an RSF review is to assess the member’s performance on RMs, while confirming the member’s debt sustainability and capacity to repay. - Reviews can monitor implementation of past RMs and update RSF program design (content of future RMs or phasing) depending on changing circumstances; given longer-term nature of RSF challenges, changes in RSF design are expected to be less frequent than in UCT programs. - If changes are necessary, teams should seek early discussion with the FDs (ideally about one month before the PCM). ### Internal review: PN Review and PCM - Teams should allow extra time for PN review to facilitate in-depth assessment of RMs, including feasibility, consistency with climate plans, and synergies with reforms supported by other institutions. - Teams should invite the WB/WHO to comment on relevant parts of the PN and are strongly encouraged to plan longer or separate PCMs to allow enough time for in-depth RM discussions; WB should be invited to the RSF part of the PCM. - Table 4 provides word count guidance on PNs and SRs for RSF requests and reviews: - PN: Joint RSF request/UCT/A4 5,100 - SR: Joint RSF request/UCT/A4 10,500 - PN: Joint RSF request/UCT 4,600 - SR: Joint RSF request/UCT 10,100 - PN: Joint RSF review/UCT/A4 3,600 - SR: Joint RSF review/UCT/A4 9,500 - PN: Joint RSF review/UCT 3,600 - SR: Joint RSF review/UCT 9,500 ### Mission work (objectives and conduct) - For RSF arrangement request missions, objectives should include—but are not limited to: - Confirming understanding of key policy gaps and mutually agreed objectives for the RSF targets with authorities and other partners, including current/planned support by other development partners. - Agreeing with authorities on an RSF RM matrix to close policy gaps (content of reforms, timeline, responsible entities, CD and development partner implementation support if needed). - Finalizing integration of RSF RMs and RSF financing in the macro framework of the arrangement, particularly when RMs create short to medium-term BoP needs. - For RSF arrangement review missions, objectives should include—but are not limited to: - Confirming completion of RSF RMs (including weblinks to published documents). - Discussing intermediary steps and additional CD necessary to ensure timely completion of remaining RSF RMs. - Discussing other climate policy gaps and deciding whether RSF program modification/augmentation is warranted. - Country teams are encouraged to leverage expertise from outside experts, especially from the WB and other partner institutions, while ensuring staff lead meetings and exercising caution in inviting outside experts to RSF negotiations. - Teams are encouraged to allow enough mission time to cover all key RSF-related issues, including: (i) dedicated mission days focused on the RSF, and (ii) an introductory meeting presenting RSF mechanics and key climate challenges. - RSF missions should broaden counterparts to include government entities coordinating/implementing climate policy and sectoral ministries (environment, infrastructure, energy, agriculture, transport) and sectoral experts from WB and other development partners. - Generally, joint UCT program and RSF missions conclude with a joint Staff Level Agreement (SLA). RSF SLA cannot precede that of the UCT program. ### Post-mission work and documentation - Post-mission work follows UCT program practice but with specific attention to changes in RSF arrangement modalities. - After mission (requests and reviews), mission chief should send a Back-To-Office (BTO) to Management covering RSF arrangement and UCT program-related issues. BTO should include: - (i) any changes in the RSF arrangement, - (ii) any important developments in climate-related policies, and - (iii) a table mapping RMs included in the PN and those agreed during the mission. - Documentation items to include in PN and SR for RSF requests and reviews: - Executive summary: (i) Context section should reference the structural challenges RSF request aims to address; and (ii) program modalities section should include separate paragraph introducing the RSF arrangement, including any BoP need justification, RSF financing amount and RSF reform priorities. - Context: Highlight the longer-term structural challenge the RSF request aims to address, including the BoP link, and concise discussion of government objectives and plans. - Policy discussion: Discuss (i) the structural challenge targeted and (ii) the country’s current and planned policies to tackle the challenge, with RSF RMs highlighted. - Program modalities: Include a paragraph on the RSF; for requests and augmentation highlight (i) eligibility/qualification for the RSF request, (ii) justification of the access level, (iii) how RSF financing is integrated in the macroeconomic framework and what BoP needs it addresses. Include paragraph on how RSF catalyzes other climate financing, if applicable. - RM matrix and development partners engagement table: RM matrix links RMs to key challenges, diagnostics, CD and outcomes (Table 1). RSF requests should include mapping of the climate policy space and the role of other development partners (Table 2). - Climate Annex (for RSF requests only): More details on structural challenges, government’s overall reform program, overview of other support by development partners; could include a box outlining CD needs and a CD strategy for program implementation and review stages. - DSA: DSA write-up should explain how (i) the structural challenges targeted by the RSF and (ii) the accompanying policy/investment response measures are reflected in the macroeconomic framework underlying the DSA. Under the MAC DSA framework, teams are required to run the LT climate stress test module in case of climate-related RSF requests. Teams are encouraged to include customized stress tests reflecting risks linked to the size of the structural challenge (Annex IV). - Program tables: Fiscal, BoP and external financing tables should clearly show that the pre-RSF financing gap is closed by the UCT arrangements. RSF financing is additional to: (i) build foreign exchange reserves towards future prospective balance of payment needs, (ii) replace alternative financing with less advantageous terms and/or (iii) cover additional financing needs from the RSF reforms themselves (Annex II). - Additional RSF-specific tables: In addition to standard UCT-UFR tables and Tables 1 and 2, teams should include in the SR a RM timeline organized by broad reform areas, and a RSF phasing table. - Other: Stand-alone RSF SRs (in the case of a concurrent FCL arrangement) should follow standard UCT program practices and policies, and illustrate how the UCT program qualifications are verified. For RSF reviews, the SR should reflect on RM performance. ### Assessment Letters, LOI, MEFP, and TMU - Assessment Letters (AL) should be included as a supplement of the SR and in the bundle for publication for both program requests and reviews; for program reviews, AL can take the form of a streamlined update of the previous AL. - The SR and MEFP (or Program/Written Statement) should document coordination with the WB/WHO, including a brief description of their engagement in the sector and/or any technical assistance related to RSF-supported reforms they provide, acknowledge WB/WHO staff inputs, and describe parallel financing arrangements and complementary/synergic policy and financial operations when relevant. - The joint UCT program/RSF arrangement LOI and MEFP should reflect the request for RSF financing and disbursements during a review, and adjustments in phasing or substance of RMs, as needed. - MEFP should describe authorities’ plans to address the qualifying longer-term challenge(s) and, if applicable, any related financing plans; and explain how RMs would contribute to those plans. Where appropriate, detailed specifications on how RMs should be implemented and assessed can be included in the TMU. ### Annex I. RST-Eligible Countries (selection and indicators) - Annex I lists countries with columns: Country; PRGT; Small State Group. - Examples from the list include: - Afghanistan 1 0 A - Burkina Faso 1 0 A - Cabo Verde 1 1 A - Bangladesh 1 0 B - Belize 0 1 B - Malta 0 0 C - Mexico 0 0 C - India 0 0 C - Jamaica 0 0 C - Indonesia 0 0 C - Note: Annex provides a comprehensive country listing with PRGT and Small State Group flags across pages 47–50. *https://www.imf.org/-/media/files/publications/pp/2023/english/ppea2023051.pdf* ### Annex II. RSF Financing Presentation in Tables for Program ### Annex II. RSF Financing Presentation in Tables for Program ### General guidance - RSF financing should not contribute to closing external/fiscal financing gaps, unless the RMs generate direct, identifiable, and short-term BoP/fiscal costs not covered by other development sources. - RSF disbursements should be recorded below the line, along with other reserve and closely related items. - When RMs generate identifiable BoP or fiscal costs, the portion of RSF disbursements dedicated to these costs should be presented under prospective financing, but separately from other IMF financing (e.g., ECF/EFF) and budget support. The remainder should be presented after the exceptional financing/residual gap. - Gross reserves with and without the RSF should be shown in memorandum items to disentangle the impact of the RSF. - RSF financing is usually recorded under external financing below the line; in some cases RSF disbursements may be recorded under domestic financing if the disbursement is kept in the central bank and the equivalent amount is lent to the government in domestic currency. - Specific costing of reforms is required if it serves to justify RST access above the norm to address any direct short- to medium-term BoP needs associated with implementation of RSF-supported reforms, but quantification may be difficult and teams should exercise caution and consult with SPR in case of doubt. ### Illustrative 3-year RSF case (Country X) - Program length: 3-year RSF request intended for budget support. - Uses across years: - Year 1: RSF disbursements help build external and fiscal buffers. - Year 2: RSF disbursements finance BoP and fiscal costs directly linked to RMs (identifiable RM costs). - Year 3: RSF disbursements substitute for more expensive domestic financing, increasing buffers against qualifying structural-challenge risks. ### Presentation in External Financing Needs and Sources (Panel A highlights) - When RMs do not generate identifiable BoP costs, the financing gap should be closed excluding RSF financing; RSF disbursements are presented after the exceptional financing/residual gap (residual gap = 0). - When RMs generate identifiable BoP costs, the additional financing gap can be financed by RSF; the portion for RMs is shown under prospective financing, separately from other IMF financing and budget support. The remainder is shown after the residual gap. Key figures from Table A1 (Gross Financing Needs Table / External Financing Needs and Sources): - Period: 2023, 2024, 2025 - Current Account [A]: -1000, -1050, -1000 - Goods and services: -300, -350, -300 - of which, identifiable RM BoP costs: 0, -500, 0 - Primary and secondary income: -700, -700, -700 - Capital and Financial Account [B]: 750, 700, 700 - Overall Balance [A]-[B]: -250, -350, -300 - Financing: 150, 250, 200 - Change in reserves (- = increase, without RSF): -500, 0, 0 - Prospective budget support: 200, 200, 200 - RSF disbursement (identifiable RM BoP costs): 0, 500, 0 - Financing Gap: 100, 100, 100 - Use of Fund credit: ECF/EFF: 100, 100, 100 - Residual Gap: 0, 0, 0 - RSF disbursement (not linked to RM BoP costs): 50, 50, 50 - Memorandum items: - Gross reserves (with RSF): 1000, 1050, 1100 - Gross reserves (without RSF): 950, 950, 950 - Total RSF disbursements: 50, 100, 50 ### Balance of Payments (BoP) presentation (Panel B highlights) - Typical presentation: RSF disbursements presented after the residual gap, topping up overall reserves or substituting for more expensive financing. - When RMs generate identifiable BoP costs, the higher overall deficit can be financed by RSF; portion financing RM BoP costs is shown separately from prospective budget support and other IMF financing; remaining portion presented after the residual gap. - Key figures from Table A1 (BoP Table): - A Gross Financing Needs (1+2): 1050, 1050, 1000 - 1 Current account deficit: 1000, 1050, 1000 - of which RSF reform costs: 0, 500, 0 - 2 Reserve accumulation (without RSF): 500, 0, 0 - B Gross Financing Sources: 750, 700, 700 - C Financing Gap (B-A): -300, -350, -300 - D Prospective Financing (3+4+5): 300, 350, 300 - 3 IMF ECF/EFF: 100, 100, 100 - 4 Budget support (multilateral excl. IMF): 200, 200, 200 - Grants: 100, 100, 100 - Loans: 100, 100, 100 - 5 RSF disbursement (RM BoP costs): 0, 500, 0 - E Exceptional Financing/Residual Gap (C+D): 0, 0, 0 - 6 RSF disbursement (not linked to RM costs): 50, 50, 50 - F Reserve accumulation (with RSF) (2+6): 100, 50, 50 - Memorandum items: - Total RSF disbursements: 50, 100, 50 ### Fiscal presentation (Panel C highlights) - RSF financing is usually recorded under external financing below the line; in some cases recorded under domestic financing if central bank keeps disbursement and lends equivalent amount in domestic currency. - If RMs do not generate fiscal costs, RSF disbursements should lead to either (i) an “over-financing” that increases government financial assets or (ii) replacing other, more expensive financing. - If RMs generate identifiable fiscal costs, a portion of RSF disbursement can be presented as financing the higher fiscal deficit driven by larger current/capital expenditures due to RM costs. Key fiscal figures from Table A1 (Fiscal Table): - Period: 2023, 2024, 2025 - Total revenue and grants: 2500, 2500, 2500 - Total expenditure and net lending: 4950, 4950, 4900 - Current expenditure: 3950, 3900, 3900 - Capital expenditure: 1000, 1050, 1000 - Fiscal balance: -2450, -2450, -2400 - Domestic financing: 1500, 1500, 1450 - External financing: 1000, 1000, 950 - Project financing: 0, 0, 0 - Budgetary assistance: 200, 200, 200 - Eurobond issuance: 750, 700, 700 - RSF disbursement (total): 50, 100, 50 - Increase in government assets: 50, 500, 0 - of which RSF (not linked to RM fiscal costs): 50, 500, 0 - Memorandum items: - Fiscal balance excluding RSF spending: -2450, -2400, -2400 - Financing excluding RSF disbursement: 2450, 2400, 2400 - Domestic financing without RSF: 1500, 1500, 1500 - Domestic financing with RSF: 1500, 1500, 1450 - Exchange rate assumption: 1 USD = 1 LCU ### Notes on presentation practice and staff judgment - Final presentation of BoP/fiscal tables may depend on staff preferences and current practices, but should be consistent with the principles above. - Teams should disentangle RSF impacts via memorandum items showing reserves with and without RSF. - Quantification of reform costs to justify RSF access above the norm requires caution and SPR consultation in case of doubt. *Annex II. RSF Financing Presentation in Tables for Program — ppea2023051* ### Annex IV. DSAs in Joint RSF-UCT Programs ### Annex IV. DSAs in Joint RSF-UCT Programs ### Medium-term debt sustainability and RSF access - Medium-term debt sustainability is a key qualification for accessing the RST. - RSF arrangements can only be approved if debt is assessed as sustainable under the applicable debt framework: LIC-DSF (non-market access countries) or MAC-SRDSF (the Sovereign Risk and Debt Sustainability Framework for Market Access Countries). - The LIC-DSF and SRDSF Guidance Notes remain the governing guidance on interpreting the long-term impact of climate risks in the DSA. - Given the longer maturity of RSF loans, debt sustainability analysis in RST financing requests needs to analyze long-term implications of climate change and pay attention to debt vulnerabilities over a longer time horizon. ### Required discussion of longer-term risks in DSAs for RSFs - A discussion of longer-term risks to debt sustainability, with a focus on country-specific climate-related risks and policy action, is required in DSAs for RSFs. - For climate-related cases, the LT climate module in the MAC SRDSF and the 20-year baseline macroeconomic projections in the LIC-DSF should include: - any relevant information on the impact of climate risks such as climate-related spending on adaptation and/or mitigation as well as their financing mix (e.g., DRM, grants, domestic/external loans); and - the impact of climate-related policy measures on average long-run growth. - The writeup should indicate if baseline assumptions are aligned with the authorities’ climate-related investment plans or whether adjustments have been made because staff views the plans as unrealistic. - Climate change risks included in the baseline could affect the mechanical risk rating in the LIC-DSF. - Country teams are expected to use tools, flexibility and customization of existing frameworks to discuss: - adverse effects on debt sustainability related to climate change; - potential costs and benefits of climate action; and - where applicable (e.g., hydro-carbon exporters) debt sustainability implications of global decarbonization efforts. - Both the MAC-SRDSF and the LIC-DSF already provide tailored stress tests for natural disasters (triggered for vulnerable countries) to capture risks associated with one-off climate events over the medium term. ### Alternative scenarios and long-term projections - Alternative scenarios are encouraged, though not required. - Benefits of alternative scenarios: - provide a more thorough assessment of longer-term debt sustainability; - inform the general macroeconomic discussion in SRs. - Alternative scenarios should reflect costs and risks from climate change over the longer term. - Analysis of debt sustainability under these scenarios should be anchored in the relevant DSF, with illustrative figures typically showing the full 20- or 30-year horizon, but could be complemented by other analysis the team sees fit. - Teams should strive to justify and, where possible, benchmark parameters to other countries in similar circumstances. ### A.1 Market Access Countries (MAC-SRDSF) - For market access countries, the long-term modules provided with the MAC-SRDSF modules are required. - The modules on climate change, large amortizations, and demographics under the new MAC-SRDSF are required for program documents with a concurrent RSF arrangement; the natural resource scale-up/depletion module remains optional. - The SRDSF’s Climate Change module consists of two sub-modules: - (i) adaptation investments (building resilience to the effects of climate change); and - (ii) mitigation (efforts to reduce greenhouse gas emissions). - The two sub-modules allow projections of debt-to-GDP and Gross Financing Needs (GFN)-to-GDP over a 30-year horizon. - Users are encouraged to design a customized scenario to adjust assumptions to country-specific characteristics, including any insight on the impact of agreed RMs; a standard scenario based on default assumptions in the DSA template is also available. - Key outputs: extended projections for debt-to-GDP and GFN-to-GDP to inform long-term risk assessment. - Given substantial uncertainty about future evolution of climate change and its impact on sovereign risks, the assessment would be qualitative. - Teams are encouraged to leverage relevant analysis from the IMF’s CPD, WB’s CCDR, or other country-specific work when designing scenarios. ### A.2 Non-Market Access Countries (LIC-DSF) - The LIC Debt Sustainability Framework (LIC-DSF) requires a macroeconomic framework for a 20-year projection period, providing debt and debt service projections for the full repayment horizon of RST financing. - Teams should pay special attention to the evolution of debt over the longer term. - In the LIC-DSF: - breaches projected to occur in projection years 11–20 do not normally give rise to a rating downgrade and usually only the first 10 years of projections are shown in figures and tables in the DSA writeup; - however, if analysis results in an upward debt trajectory over the longer horizon or if there are breaches of thresholds in the baseline or stress tests in years 11-20, consideration can be given to change the debt risk rating when: - (i) the breaches are expected to be large, persistent, and thus resulting in significant differences relative to historical averages; and - (ii) occur with a high probability despite occurring in the distant future. - The DSA should clearly explain a rating change informed by such a breach, including discussion of why the breach can be expected to be large and persistent, and occur with high probability. - In such cases, DSA figures can show the 20-year horizon in addition to discussing longer term implications of climate measures. - DSA tables already report the debt indicators in the 11th and 20th years, giving an indication of the trajectory of the debt and debt service indicators. - Alternative scenarios could be explored to inform the assessment: - scenarios could reflect likely climate-related investment needed for adaptation or mitigation objectives; - where assessments are not available, teams could draw assumptions from the IMF’s CPD or WB’s CCDR, or other studies; - teams could consult with the WB/FAD/SPR climate group on how to incorporate climate change into macroeconomic projections; - teams could consider showing a scenario illustrating the cost of inaction to emphasize benefits of the RST and climate-related investment; qualitative analysis may inform model parameters if quantification is difficult. - The alternative scenario could inform judgement on debt sustainability and the debt risk rating, assess authorities’ commitment, financing strategy, and risks to capacity to repay the Fund. ### Examples of reform measures and catalytic potential (selected highlights) - Climate mitigation and transition policy: - Putting a price on carbon: Explicit carbon pricing (carbon taxes and ETSs) is widely considered the most effective instrument for reducing emissions. To date, 49 carbon pricing schemes have been put in place at regional, national, and sub-national levels. - Fossil fuel subsidies reform: phasing out government support to fossil fuels; RMs can include automatic fuel price and electricity tariff adjustments. - Sectoral mitigation policy: feebates, tradable performance standards, incentives for renewable energy, standards for energy efficiency, regulatory reforms for electric vehicles, coal decommissioning or phase-out, incentives in agriculture/land-use/forestry/waste sectors. - Climate adaptation policy: - Adaptation RMs should enable large-scale climate-resilient investment, promote efficient private adaptation, and strengthen social safety nets. - Possible tools: natural resource/water pricing, establishment of water markets, tax incentives for adaptation, removal of subsidies to private risk taking (e.g., subsidized flood insurance), payment for environmental protection services, targeted social programs. - Risk management measures: fiscal/financial buffers, contingent financing, insurance for public assets, catastrophe insurance, weather insurance, data repositories on infrastructure assets at risk, operationalization of early warning systems, development of data infrastructure and decision-support tools. - Enabling institutions: - Integrating climate considerations in public investment management and infrastructure investment cycles; C-PIMA is the Fund’s main diagnostic tool for assessing progress and has been utilized in several RSF programs. - Examples of C-PIMA based RMs: aligning public investment plans with NDC goals, integrating climate-related risks in land-use and urban regulations, incorporating climate adaptation/mitigation in project appraisal, making PPP frameworks climate-responsive, reflecting climate risks in asset management and project implementation. - Incorporating climate in fiscal and budget frameworks: climate budget tagging systems, integration of climate considerations in macro-fiscal and budget processes, transparent reporting of climate spending, technical assistance on budget tagging to increase access to official and private climate finance. - Financial sector reforms: - Green financing and incorporating climate in financial sector risk assessments: possible RMs include implementing a green bond/green taxonomy framework; establishing sustainability-linked bonds frameworks and KPIs; implementing climate risk disclosure; establishing data repositories on physical risk, transition risk, and bank exposures; integrating climate change into corporate governance of banks. - Climate risk stress testing for financial institutions could be considered once climate and bank exposure data gaps are addressed. - RMs in this area should be formulated in accordance with international standards. ### Catalytic potential of strong reforms - Mitigation and transition reforms (e.g., carbon taxes, fossil fuel subsidy reform) can redirect private investments from fossil fuels to clean energy and accelerate private financing in sectors like electric vehicles. - Adaptation reforms (e.g., water pricing, water market reforms, fiscal incentives) are expected to promote private sector adaptation investments and, together with risk-sharing facilities and guarantees, can mobilize private capital for adaptation and post-disaster response. - Institutional reforms (e.g., climate-responsive fiscal and budget frameworks, PPP approaches where appropriate, climate budget tagging systems) provide a foundation to leverage public and private climate finance and improve access to international climate finance. *Annex IV. DSAs in Joint RSF-UCT Programs — ppea2023051* ### 5. Financial sector reforms. Addressing climate data gaps, reporting of exposure to ### 5. Financial sector reforms. Addressing climate data gaps, reporting of exposure to climate-related risks, and broad climate diagnostic exercises support banks and financial institutions in managing physical and transition risks and help them steer private investment towards risk-adjusted climate investments. ### Climate-related financial sector reforms and tools - High-quality, reliable, and internationally comparable data help investors to make better-informed investment decisions and risk-return assessments. - Adopting sustainable finance alignment tools, such as green taxonomies, make it more efficient for investors to identify sustainable assets which would support the mobilization of private climate finance. - Addressing climate data gaps, reporting of exposure to climate-related risks, and broad climate diagnostic exercises support banks and financial institutions in: - managing physical and transition risks; and - steering private investment towards risk-adjusted climate investments. ### Constraints to scaling climate investments in EMDEs - A limited pipeline of projects in many EMDEs is a major constraint that prevents scaling up of climate investments, even where the private sector is otherwise willing to invest. - Some weaknesses are due to legal or regulatory frictions, which reduce investors’ incentives to finance climate projects. - Lack of a sizeable pipeline reduces diversification opportunities, discouraging institutional investors that need to maintain a diversified set of investments. ### Public-private partnerships (PPPs) considerations - PPPs usually result in higher financing costs, require complex tendering and careful contract management, and expose governments to significant fiscal risks. - PPP processes need to be carefully managed, including fiscal risk management considering the long-term nature of PPPs and the complexity of risk-allocation agreements. ### Annex VI — Applying the 2018 Framework for Enhanced Engagement on Governance in RSF Context: Purpose and approach - Purpose: Help country teams promote improved design and implementation of RSF-supported reforms by considering governance and corruption issues, guided by the 2018 Framework for Enhanced Fund Engagement on Governance. - If governance weaknesses and corruption vulnerabilities exacerbate risks associated with qualifying structural challenges—including by undermining the RSF’s catalytic role for private climate finance—teams could consider inclusion of governance-related conditionality to address these vulnerabilities. - Structural governance issues would be best addressed in the concurrent UCT programs. - Governance and corruption measures that are specific and critical to reduce risks to prospective BoP stability stemming from the qualifying longer-term challenges could become part of the RSF reform package. ### Identifying governance and corruption issues (summary of tools and processes) - The 2018 Enhanced Governance Framework guides the identification of governance vulnerabilities. - A centralized process systematically identifies governance weaknesses and corruption vulnerabilities for every member country. - Country teams are expected to substantively discuss governance and corruption vulnerabilities that are sufficiently severe within the context of a medium-term surveillance cycle (normally within three years).1 - Detailed resources available: - Centralized Governance Assessment: - Identifies critical governance weaknesses and corruption vulnerabilities across the entire membership. - Uses quantitative and qualitative information from governance-related indicators and expert qualitative information. - Governance weaknesses identified across six core state functions: (i) fiscal governance; (ii) financial sector oversight; (iii) central bank governance and operations; (iv) market regulation; (v) rule of law; and (vi) AML/CFT. - The severity of corruption is also identified. - Brainstorming Sessions: - IMF country teams may request governance brainstorming sessions with experts from functional departments and other specialized organizations such as the WB. - Sessions can be requested ahead of policy note preparation for the RSF arrangement and the concurrent UCT program and can feature governance issues critical to underpinning climate-related measures; results may be documented in a note. - Governance Diagnostics: - Country authorities can request governance diagnostic assessments, typically co-led by FAD and LEG, subject to resource availability, often including MCM and FIN staff. - Diagnostics provide in-depth, country-tailored assessments and prioritized, sequenced measures to address vulnerabilities. Most are published. - Country Engagement Strategies (CES): - The 2022 Strategy for FCS requires CES to be produced in all FCS—with careful consideration for corruption as a potential driver of fragility and a constraint to escaping fragility. - Climate-related CD Reports: - Governance and corruption vulnerabilities specific to climate-related measures can be derived from technical assistance reports, including CPD, C-PIMA, Green PFM, and other CD reports related to carbon pricing, fossil fuel subsidies, or green tax reforms. - SRs including TA Reports: - Staff can leverage information from previous Article IV reports, program requests and reviews, and TA reports such as the most recent FSAP, FSSR, PIMA, etc. ### How governance and corruption vulnerabilities hamper climate policies - Climate-related policies are particularly vulnerable to governance issues because of their longer-term nature. - Governance issues that undermine effectiveness include: - vested interests; - incomplete or non-functional accountability systems; - other institutional weaknesses; and - lack of ownership by policy makers. - Climate adaptation measures often involve significant public expenditures and public project financing, making them vulnerable to public investment management weaknesses that can lead to inefficiencies and corruption. - Limited institutional competencies and coordination, lack of transparency, and governance rigidities undermine policy effectiveness and the ability to implement complex and high-value investments, leading to: - inefficient use of resources; - elite capture of government processes; and - excessive influence of vested interests. - Management and utilization of natural resources (e.g., mining, oil and gas, forestry, fishing) can raise serious governance and corruption concerns with environmental implications. - Governance and corruption vulnerabilities also have a deleterious effect on the catalytic role of climate financing by hindering private climate finance that RSF reforms may otherwise catalyze. ### Addressing governance and corruption issues in the RSF context (guidance and conditionality) - UCT programs should include governance and anti-corruption conditionality when critical to achieving program objectives. - Pursuant to the 2018 Framework, addressing governance and corruption vulnerabilities should be a condition for the use of Fund resources if, given the severity of governance vulnerabilities, it is assessed that addressing the identified vulnerabilities is of critical importance for achieving the member’s program objectives.4 - Governance issues can be discussed and addressed within the 2018 governance framework: - In the fiscal area, the framework recognizes institutional arrangements and practices that foster transparency, enhance public spending efficiency, and improve revenue administration all reduce risks of leakage from funds. - Governance issues for climate policies are widely covered in areas related to procurement, public investment management, and natural resource management. - Design of specific governance- and corruption-related measures should draw on available diagnostics (¶2) and should be appropriately sequenced and prioritized according to the principle of parsimony in conditionality. - Recommended two-step approach for teams: - (i) Identify governance and corruption issues which can undermine effective implementation of RSF RMs or contribute to macro-critical risks related to the qualifying longer-term structural challenges; and - (ii) Proactively engage with LEG and FAD on the design of appropriate governance and corruption measures to address these issues. - Allocation of measures: - The UCT-program accompanying the RSF arrangement is the natural bedrock of broad governance reforms that support implementation of RSF reforms and prospective BoP stability (e.g., PPP frameworks). - Governance-associated RMs would be appropriate in the RSF reform package if specifically relevant for addressing the longer-term qualifying challenge. - Example: Where corruption is assessed as severe and implementation capacity low, RSF-supported RMs could focus on the role of Supreme Audit Institutions (SAIs) to support accountability regarding climate investments and climate-related spending. - Governance-related conditionality needs to account for country context: - Effectively addressing governance weaknesses in fragile and conflict-affected states requires consistent engagement over many years. - Fund engagement should account for limited implementation capacity and incentives facing key stakeholders (political economy). - For further details, refer to the FCS GN (2022), Annex II. - Capacity Development (CD): - Well-sequenced CD to support effective implementation of governance measures can be critical to successful Fund-supported programs, especially in situations of limited resource availability or implementation capacity. - This can be addressed through integration of pertinent CD offerings in the member’s CD priorities, coordination with other CD providers, or within the program context. *Source: ppea2023051* --- _Source: https://www.imf.org/-/media/files/publications/pp/2023/english/ppea2023051.pdf_