CGD Talks: Compound Crises Call for Decisive Action
IMF News, September 14, 2022
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- Published: September 14, 2022
Overview
- IMF Managing Director Kristalina Georgieva and Centre for Global Development President Masood Ahmed discuss the IMF’s response to multiple simultaneous shocks (pandemic, war, cost of living) and agenda ahead of the Annual Meetings.
- Central objective: buffer countries against shocks and build resilience for a more shock-prone world.
Emergency financing and proposed food shock window
- Rationale:
- Food-specific cost of living and availability shocks are particularly dramatic for vulnerable countries.
- Proposal to increase access to emergency financing for a year to countries most vulnerable to food shocks or other factors (e.g., Ukraine’s export disruption).
- Eligibility and scope:
- IMF identified about 50 countries that meet the vulnerability criteria.
- Of these 50 countries, perhaps 20 to 30 are the most immediately in need to take advantage [of it].
- The Fund will set aside countries where a Fund program already exists or there is interest in a full Fund program (those can be augmented through existing programs).
- Governance innovation:
- Proposal includes more involvement of the IMF Board of Directors for more complex cases or pathways leading to full-fledged Fund programs.
- Timing:
- Informal Board discussion was positive and urgent action is intended; Georgieva hoped for Board stamp of approval and swift movement around the Annual Meetings.
Fund lending, demand, and recent activity
- Since the pandemic:
- 93 countries have benefited from Fund support.
- The IMF has provided some $258 billion of lending since the pandemic.
- Recent demand since Russia’s invasion of Ukraine:
- 16 countries already coming with requests for financing for a notional [amount of] around $90 billion.
- Emerging markets and distress:
- 25% of emerging markets are in or near debt distress.
- Over 60% of low-income countries are in debt distress.
- Observation:
- Tightening financial conditions, appreciation of the dollar, and rising interest rates are still in early days of impact; demand for IMF support is increasing.
Precautionary facilities and mindset change
- Policy emphases:
- Encourage earlier use of precautionary facilities so countries build buffers proactively.
- Mindset change: drawing down precautionary lines should not be viewed as failure; it can be appropriate when the global environment changes.
- Institutional work:
- IMF preparing a “menu of options” to present to the Board on how to build the Fund for today and tomorrow, including precautionary instruments, financing modalities, and financial-function aspects (e.g., surcharges).
Surcharges and Fund financial capacity
- Current debate:
- Surcharges historically deter large, repeated use of Fund resources; now, with global shocks, the rationale is being reconsidered.
- Concern against removing surcharges: could reduce Fund capacity to build strength in reserves needed to take more risk and fund poorer, riskier countries.
- Governance:
- The issue of surcharges will be on the Board table for discussion.
Resilience and the Resilience and Sustainability Trust (RST)
- Broader resilience concept:
- Resilience should be comprehensive: resilient people (education, health, social protection), resilient economy (including supply resilience), and resilient planet (climate).
- RST status and objectives:
- Spain is the first country that deposited: €1.9 billion.
- The IMF has lined up 40 billion and is acting on getting these contributions in.
- Goal: 45 billion [US dollars], possibly even more subject to demonstrated demand and success.
- RST financing terms cited as attractive: 20-year maturity, ten and a half years grace.
- Demand and implementation:
- Demand is described as exponential as countries learn about the RST.
- The IMF plans to create an internal “SWAT team” to serve RST requests and to convene roundtables once funds are secured.
- Some countries have already asked for assistance; Bangladesh mentioned as an early requester.
- Operational linkage:
- Requirement at present: countries seeking RST support need to have an IMF program engagement (disbursing or non-disbursing) to build policy foundations; the Fund may revisit this requirement as experience accumulates.
- Timing:
- Objective to move some RST requests by the end of the year and to have money secured by the Annual Meetings.
SDR recycling, PRGT, and subsidies
- SDR and RST linkage:
- New food shock window for PRGT-eligible countries would be funded from SDRs provided to the Fund to on-lend; this would demonstrate SDR recycling delivering “real money” to countries.
- Fund funding status (as described):
- On SDRs on lending: two thirds to three quarters up to the target.
- On subsidies to complement on-lending: around 40% to target.
- Subsidy appeals and creativity:
- Call to wealthier members to step up on subsidy resources to strengthen ability to help most vulnerable countries.
- Finance department exploring creative subsidy resource options, including using interest on SDRs.
- The question of a small gold sale for some countries is an open question.
Debt challenges, Common Framework, and creditor coordination
- Current problem:
- Debt pressures are building and are likely to worsen over the next two years absent action; creditor coordination remains difficult.
- Observations:
- Modest success on the Common Framework (example: Zambia).
- Need to codify rules and apply them consistently.
- Message to large creditors (including China), Paris Club, non-Paris Club creditors, and private sector: larger share implies larger responsibility and interest in preventing crises.
- Required elements (as articulated):
- Transparency: full disclosure of debt positions and claims.
- Rules that provide equal treatment for creditors.
- Organizational setup that brings creditors together.
- Political will within debtor countries to engage decisively and follow a timetable.
- Suggested process features:
- Provide incentive for countries to enter the process (e.g., debt standstill).
- Provide clear rules, predictability, and a timetable.
- Ensure inclusiveness and as much transparency as possible.
- Country examples:
- Sri Lanka: three large creditors (Japan, India, China); urgency for quick public-side engagement and private sector involvement.
- Lebanon: primarily constrained by domestic political impediments.
Country engagements: Ukraine and Argentina
- Ukraine:
- IMF was first to provide emergency financing in early months of the war: 1.4 billion [dollars].
- IMF remains the largest source of financing from international financial institutions for Ukraine.
- Discussions with President Zelensky covered potential deployment of the food shock window (subject to Board approval), likely timeline and a size “in the ballpark of what we had done last time around.”
- IMF plans a Fund mission to engage with Ukraine’s economic team within the next weeks to create a pathway toward deeper engagement and a potential full-fledged Fund program.
- Emphasis on Fund role in macroeconomic policy, revenue stabilization, and coordination with other institutions for reconstruction and transition.
- Argentina:
- High-level meeting signaled a strong commitment to the program; Minister Massa joined with the Central Bank Governor and key team members indicating whole-of-government approach.
- IMF noted Argentina’s severe inflation problem and overall significant economic challenges; agreement to work together with IMF program serving as the anchor.
Closing points and institutional tone
- Stigma reduction:
- Georgieva called for putting the stigma of Fund engagement in the past; timely use of IMF instruments benefits both the country and the global economy.
- Staff recognition:
- Georgieva thanked IMF staff for their effort and for developing fresh thinking to serve the membership in a complex, uncertain time.
Transcript: CGD Talks: Compound Crises Call for Decisive Action, September 13, 2022 — IMF Communications Department