IMF Executive Board Discusses Small States’ Resilience to Natural Disasters and Climate Change and the Role of the Fund

IMF News, December 12, 2016

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IMF Executive Board Discusses Small States’ Resilience to Natural Disasters and Climate Change and the Role of the Fund

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Bibliographic details

• Published: December 12, 2016

Context and purpose

• Press Release No. 16/550 — December 12, 2016; discussion took place on December 1, 2016.
• The staff paper reviewed: “Small States’ Resilience to Natural Disasters and Climate Change—Role for the Fund”.
• Objective: explore how the Fund’s macroeconomic policy advice, capacity building support, and lending facilities and instruments can help meet evolving needs of small states facing risks from natural disasters and climate change.

Key findings on vulnerability and risk management

• The staff paper provides data and analyses highlighting the particular vulnerability of small states to both natural disasters and climate change.
• A risk management framework, if adopted ahead of disasters, can reduce economic and human costs.
• Macroeconomic aspects of resilience-building should be integrated into:
  • core budgets,
  • public investment planning,
  • debt management frameworks.
• Fund policy tools should be adjusted to capture natural disaster and climate change risks, including:
  • debt sustainability analyses,
  • reserve adequacy frameworks.

Financing needs and contingent arrangements

• Importance of developing contingent financing plans ahead of disasters.
• Need for access to climate change financing for risk mitigation programs.
• Small states should seek to develop more ex ante financing arrangements for post-disaster use, including:
  • broader use of contingent financing arrangements,
  • regional insurance pooling,
  • catastrophe bond options.
• Many Directors suggested deeper Fund engagement with the insurance industry and development partners to assist small states and more capacity development to help small states assess options.

IMF facilities, proposed access adjustments, and CCR Trust eligibility

• Staff proposals included increasing annual access limits under the Rapid Credit Facility (RCF) and Rapid Financing Instrument (RFI) for countries affected by severe natural disasters.
• Directors generally supported raising annual access ceiling from the current 37.5 percent of quota to 60 percent of quota for countries experiencing severe disaster‑related damages.
• Most Directors considered the proposed eligibility threshold of disaster damages of at least 30 percent of GDP as overly restrictive and suggested allowing higher access in a larger range of circumstances, including lowering such disaster damage threshold to 20 percent of GDP or lower.
• Views on cumulative access ceilings:
  • Many Directors suggested considering an increase in cumulative access ceilings for the RCF and RFI.
  • A number of others supported keeping cumulative access limits unchanged at 75 percent of quota for both facilities.
  • A few Directors recommended assessing cumulative access in the comprehensive review of facilities for low‑income countries in 2018.
• Directors looked forward to a formal proposal on access limits and applicable higher‑access disaster damage threshold for Board consideration, emphasizing that any proposal must safeguard the self‑sustainability of the Poverty Reduction and Growth Trust.
• Noting that few small states are eligible for the Catastrophe Containment and Relief (CCR) Trust, many Directors suggested consideration be given to expanding eligibility criteria to give small states greater access to relief in the event of very large and rare natural disasters.

IMF assessments, collaboration, and capacity development

• The paper proposes the Fund could conduct assessments of climate change policies for selected small states on a pilot basis, in collaboration with the World Bank.
• Most Directors saw merit in an IMF assessment of macroeconomic policies related to climate change on a pilot basis, focusing on requests from small states seeking to use these assessments to improve access to climate change financing.
  • These Directors called on staff to closely collaborate with other organizations, notably the World Bank Group, when undertaking these assessments.
• A few Directors preferred assessing macroeconomic policies related to climate change as part of regular Article IV consultations, citing potential resource costs and risks of overstepping the Fund’s responsibilities.
• Directors emphasized the role of Fund capacity building in helping small states build resilience and adapt to climate change:
  • leverage regional technical assistance centers,
  • tailor capacity building to absorptive capacity and policy priorities of small states.

Executive Board assessment — summary of director views

• Directors welcomed discussion and agreed the Fund has a role, within its mandate and in cooperation with other international organizations, notably the World Bank Group.
• Directors underscored the importance of identifying risks and vulnerabilities in advance, investing in risk-reducing programs and projects, and developing contingency plans for unavoidable risks.
• Mixed views on Fund arrangements use:
  • Some Directors suggested small states could use Fund arrangements to support resilience-building policies.
  • Others did not see a case, noting this depends on balance of payment needs.
  • A few Directors saw scope for using the Policy Support Instrument in small states to build resilience.
• Directors emphasized enhanced access to financing for climate adaptation, ideally on highly concessional terms, and recommended developing less complex and cumbersome application procedures for climate fund resources.

Contact and procedural note

• IMF Communications Department — MEDIA RELATIONS; PRESS OFFICER: Phone: +1 202 623-7100 Email: MEDIA@IMF.org
• Directors requested a formal proposal on RCF/RFI access limits and disaster damage thresholds for timely Board consideration.
• A note: An explanation of any qualifiers used in summings up is provided by the Fund (qualifiers link referenced in source).

IMF Press Release No. 16/550 — December 12, 2016

References

• https://www.imf.org/en/about/infographics/pp110416-infographic-small-states-resilience-to-natural-disasters-and-climate-change
• IMF Quotas -- A Factsheet
• Press Releases
• PRESS CENTER
• Small States’ Resilience to Natural Disasters and Climate Change—Role for the Fund”,
• http://www.imf.org/external/np/sec/misc/qualifiers.htm
• https://www.imf.org/en/home