IMF Executive Board Approves Establishment of the Resilience and Sustainability Trust

IMF News, April 18, 2022

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Canonical URL: IMF Executive Board Approves Establishment of the Resilience and Sustainability Trust

Established to help countries build resilience to external shocks and ensure sustainable growth, contributing to their long-term balance of payments stability.
Focuses on longer-term structural challenges—including climate change and pandemic preparedness—that entail significant macroeconomic risks and where policy solutions have a strong global public good nature.
Will complement the IMF’s existing lending toolkit by channeling Special Drawing Rights (SDRs) contributed by countries with strong external positions to countries where the needs are greatest.
Will provide policy support and affordable longer-term financing to strengthen members’ resilience and sustainability and thereby contribute to prospective balance of payments stability.

About three quarters of the IMF’s membership will be eligible for longer-term affordable financing from the RST, including:
- all low-income countries,
- all developing and vulnerable small states,
- and lower middle-income countries.
The resulting list comprises 143 RST-eligible members.
Access rules:
- Access will be based on the countries’ reforms strength and debt sustainability considerations.
- Access capped at the lower of 150 percent of quota or SDR 1 billion.
- Access norm of 75 percent of quota endorsed.
- RST access would not count towards triggering existing GRA and PRGT exceptional access policies and high combined access safeguards (though some Directors preferred additional safeguards).
Loan terms:
- Loans will have a 20-year maturity and a 10½-year grace period.
- Borrowers will pay an interest rate with a modest margin over the three-month SDR rate.
- Tiered interest rate structure increases concessionality for lower income members.
- Most concessional financing terms provided to the poorest countries.
- Periodic interest rate reviews recommended, with an interest rate cap to be considered if needed to protect the lowest income borrowers, following consultations with contributors.

The RST is a loan-based trust with resources mobilized on a voluntary basis.
Estimated total resource needs of about SDR 33 billion (equivalent to US$45 billion); fundraising will be initiated immediately.
Operational readiness:
- RST will commence lending once a critical mass of resources from a broad base of contributors is achieved and once sufficiently robust financial systems and processes are in place.
- Anticipated to occur by the end of the year.
- Directors called on members with stronger external positions to finalize contribution agreements in time to start RST operations around the time of the 2022 Annual Meetings.
Financial architecture based on three pillars:
- a Loan Account (LA),
- a Reserve Account (RA),
- and a Deposit Account (DA).
Directors endorsed the terms of the borrowing agreements for the LA, and the contribution agreements for the RA and the DA, including allowing stand-alone contributions to the RA and DA.
Pooling and investment:
- Supported pooling RST assets with those of the PRGT for investment purposes.
- Urged PRGT subsidy account contributors to consent to the proposed amendment to the PRGT Instrument to enable such pooling.
- Expected that SDR contributors to the RST would participate actively in SDR transactions through their Voluntary Trading Arrangements to support conversion of channeled SDRs into currencies.

Governance:
- Governance places the IMF’s Executive Board at the center, complemented by consultation with contributors on key issues.
- Consent by contributors required for certain amendments that affect key contributor interests.
Risk management and financial sustainability:
- Financial risks should be managed through a multilayered risk management framework, including assessments of members’ capacity to repay and debt sustainability and the RST’s financial design.
- Importance of building up strong buffers via gross and net reserves to safeguard against financial risk and to cover administrative expenses of the Trust.
- Directors called on all Fund members, within the limits of their laws, to treat the RST as a preferred creditor, consistent with such treatment of the GRA and PRGT.
Reviews and monitoring:
- Timely, comprehensive review of the RST in three years at the latest.
- Interim review to take stock of initial experience and revisit qualifying structural challenges at around 18 months after operationalization.
- Regular updates on adequacy of RST resources with possibility to adopt contingency measures typically near the end of each financial year, and on an ad hoc basis if warranted.

Directors endorsed the proposed lending modalities under RSF arrangements.
Support for requirement of a concurrent IMF instrument with upper-credit tranche-quality conditionality.
Counting of RST credit outstanding toward post-financing assessments triggers was welcomed; directors noted triggers may be recalibrated as appropriate at the RST review.

Emphasized the importance of close and systematic coordination with the World Bank and other relevant institutions to leverage specialized expertise, provide coherent policy advice, and catalyze financing.
Encouraged prompt development of a coordination framework for pandemic preparedness similar to the proposed framework for climate change.
Staffing and costs:
- Implementation of the RST will result in new demands on staff resources.
- The RST should pay a fee to the GRA to cover trust management activities which would constitute budget receipts.
- Supported reimbursement of the GRA for the cost of administering the Trust excluding activities covered by the fee; these costs to be discussed in the context of the annual income paper.

Directors concurred that the RST’s role in providing affordable long-term financing to enhance economic resilience and sustainability would contribute to prospective balance of payments stability, consistent with the Fund’s purposes.
Directors noted that the economic costs of not addressing macro-critical longer-term structural challenges could be very high; RST support combined with catalyzed additional financing would help alleviate these risks.
Most Directors supported an initial operational focus on climate change and pandemic preparedness, while maintaining flexibility to add additional qualifying challenges in the future with sufficiently broad consensus; some Directors proposed a broader set of qualifying challenges from the outset.
Many Directors would have preferred higher access limits for small quota countries, vulnerable states, and other qualifying members with large financing needs.
Directors emphasized the need for sufficient contributions to meet estimated demand and for contributors to participate in SDR transactions to enable conversion of channeled SDRs.

Press Release No. 22119 — April 18, 2022 — IMF Communications Department