A New Trust to Help Countries Build Resilience and Sustainability

IMF Blog, January 20, 2022

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Canonical URL: A New Trust to Help Countries Build Resilience and Sustainability

A proposed $50-billion trust fund could help low-income and vulnerable middle-income countries build resilience to balance of payments shocks and ensure a sustainable recovery.
The Trust’s central objective is to provide affordable long-term financing to support countries as they tackle structural challenges.
Long-term challenges highlighted: COVID-19 recovery, climate change, pandemic preparedness, and digitalization—each posing significant macroeconomic risks through natural disasters, industry disruptions, job market shifts, and trade flow interruptions.
The Trust is intended as a shared response by individual countries and the international community to global public policy challenges.

Eligibility:
- About three quarters of the IMF’s membership could be eligible for RST financing.
- Eligible groups include all low-income countries, all developing and vulnerable small states, and all middle-income countries with per capita GNI below 10 times the 2020 IDA operational cutoff , or about $12,000.
Qualifying reforms:
- RST support aims to address macro-critical longer-term structural challenges that entail significant macroeconomic risks to member countries’ resilience and sustainability, including climate change, pandemic preparedness, and digitalization.
- Support depends on availability and access to strong diagnostics, ability to identify policy priorities, and to develop appropriate reform targets.
- Country ownership and strong commitment by authorities are critical to catalyze financing from multilateral development banks and the private sector.
- Close coordination with other relevant institutions (IMF–World Bank coordination framework on climate risks) is essential; similar frameworks will be developed for other reform areas.

Qualification:
- To qualify for RST support, an eligible member would need: a package of high-quality policy measures consistent with the RST’s purpose; a concurrent financing or non-financing IMF-supported program with appropriate macroeconomic policies to mitigate risks for borrowers and creditors; and sustainable debt and adequate capacity to repay the Fund.
Financing terms:
- The RST would be established under the IMF’s power to administer contributor resources, similar to the IMF’s highly concessional and currently zero interest rate Trust for low-income countries (PRGT).
- Loans would have much longer maturities than traditional IMF financing.
- Staff has proposed a 20-year maturity and a 10-year grace period.
- A tiered interest structure would differentiate financing terms across country groups, with a high degree of concessionality for lower-income members.

Access to financing:
- Access would be determined case by case based on the strength of reforms and debt sustainability considerations.
- Access is expected to be capped at 150 percent of IMF quota or SDR 1 billion, whichever is smaller.
- RST lending would be part of a broader financing strategy involving multilateral, bilateral official, and private financing.
Financial architecture:
- RST resources would be mobilized on a voluntary basis from members who wish to channel their SDRs or currencies for the benefit of poorer or vulnerable countries.
- The architecture is designed to mobilize substantial resources for low-cost long-maturity loans while ensuring the safety and liquidity of contributors’ claims through a multilayered risk management framework that maintains the reserve asset nature of channeled SDRs.
- To meet projected demand, the RST would need to mobilize initially around $50 billion in total resources.
- A smooth functioning SDR trading market would underpin successful RST operations.

Collaboration essential for success:
- Mitigating economic risks from long-term structural challenges requires consistent, deliberate reforms and strong policy commitment.
- The RST will support coordinated efforts with the World Bank, regional development banks, and other international institutions to complement their lending, expertise, and capacity building.
- Success depends on economically stronger IMF members providing meaningful resources; borrowers implementing reforms to improve balance of payments stability; and international financial institutions supporting with expertise, knowledge, and financing to help mobilize private sector investment.
Implementation timeline (current intentions):
- With broad support from membership and international partners, the Trust could be approved by the IMF Executive Board before the upcoming Spring Meetings and become fully operational before the year’s end.

Source: A New Trust to Help Countries Build Resilience and Sustainability (IMF blog, January 20, 2022)