The Chair’s Summing Up 2023 Review of Resource Adequacy of the Poverty Reduction and Growth Trust, Resilience and Sustainability Trust, and Debt Relief Trusts Executive Board Meeting 23/28, April 6, 2023

Executive Directors welcomed the first joint annual review of resource adequacy of the Poverty Reduction and Growth Trust (PRGT), Resilience and Sustainability Trust (RST), and Debt Relief Trusts. They recognized the importance of ensuring that these Trusts are adequately funded given their vital role in helping member countries in the face of a challenging economic environment. They commended countries that already contributed to these Trusts or pledged to support them.

Directors noted the unprecedented scale of zero-interest lending that the PRGT provided to low-income countries (LICs) during 2020–22 to help them address multiple shocks, including the pandemic and the adverse spillovers from Russia’s war in Ukraine. They underscored that this critical support was upheld by the 2021 PRGT reforms, which created much-needed borrowing space for LICs.

Directors recognized that higher demand for PRGT borrowing, together with the rapid rise in global interest rates, are putting additional strains on PRGT finances. Noting that immediate implementation of some of the corrective measures envisaged under the 2021 PRGT framework could have a limited impact on PRGT finances while negatively affecting PRGT borrowers, Directors instead endorsed a multi-pronged strategy to address the PRGT’s near-term financing needs while advancing efforts required to ensure its longer-term sustainability.

As an immediate priority, Directors called for rapid progress in completing the first stage of the PRGT’s two-stage funding strategy through a concerted push to mobilize broadly burden-shared subsidy pledges totaling a further SDR 1.2 billion. Directors agreed that, where feasible, donors should direct subsidy contributions to the Subsidy Reserve Account (SRA) to gain the added benefit of bolstering the PRGT’s reserve coverage. Most Directors also saw merit in reallocations from the Subsidy Accounts to the SRA to bolster reserve coverage if needed in the future, with a few Directors calling for early consideration of this option. Directors generally emphasized the need for enhanced monitoring of progress on subsidies and reserves to take timely actions if needed. Directors urged donors to provide the needed remaining pledges in additional loan resources (SDR 3.5 billion) under the 2021 loan fundraising round, including through SDR channeling.

Directors underlined their commitment to a self-sustained PRGT that is fully able to meet the needs of the institution’s poorest and most vulnerable members over the longer term. They noted that the 2024/25 comprehensive PRGT review would include an assessment of the appropriate long-term lending envelope as well as the options under the second stage of the funding strategy to sustainably support such PRGT lending, including potential use of Fund internal resources, which could include gold sales, gold pledges, and further suspension of PRGT reimbursement to the Fund, and distributions from Fund reserves. A number of Directors emphasized that adjustments to concessional lending terms, including a tiered interest rate structure, may be needed. Directors looked forward to technical work by staff on the full range of options available, including possible innovative solutions, to facilitate building consensus for timely progress during the 2024/25 review. Many Directors favored early consideration of internal resource use, particularly gold sales.

Directors reaffirmed that substantial progress towards the first stage of the fundraising goals would allow for an ad hoc interim review of PRGT normal access limits, which could consider the feasibility of a temporary increase in line with that recently agreed for the GRA. Given the difficult environment facing LICs, many Directors also favored deferring the next review of PRGT interest rates until the 2024/25 comprehensive PRGT review, while some other Directors preferred to complete the review in July 2023 as originally planned.

Directors recognized that CCRT debt service relief to 31 of the IMF’s poorest and most vulnerable members during 2020–22 had freed up scarce financial resources for vital spending to mitigate the impact of the pandemic. They broadly agreed on the need to address the CCRT’s severe underfunding so that it can respond to future qualifying events.

Directors welcomed initial operations of the new RST in supporting members to address structural challenges that pose risks to prospective balance of payments stability by providing long-term affordable financing. Noting the strong RST demand from a broad set of eligible members, Directors agreed that pledged resources should be made effective promptly to avoid first-come first-served incentives and ensure even-handedness. The loan resource gap of SDR 6½ billion should also be urgently filled, by seeking additional pledges that can be made effective during 2023–24.

In view of the increase in SDR interest rates, most Directors supported the introduction of a cap at 2.25 percent on the interest rate for the lowest income RST-eligible members to ensure they benefit from affordable lending terms, with a number of Directors expressing their concerns regarding its possible impact on reserve adequacy and the financial base of the trust. Directors underscored the importance of building adequate RST reserves to safeguard the reserve asset status of contributor claims, and called for close monitoring of reserve adequacy to enable the adoption of corrective measures in a timely manner when necessary, with a number of Directors calling for continued exploration of alternative options at the Interim Review of the RST.

Regarding the implementation of RST access policy, Directors noted that all RSF arrangements approved so far had been granted at maximum access. Pointing to the current loan resource gap and the strong RST demand evident from the pipeline of requests, many Directors cautioned against maximum access becoming the norm and emphasized that clear justification is crucial for access levels above the norm of 75 percent of quota, with a few Directors also emphasizing the importance of the RST’s catalytic role. Directors called for redoubled efforts to fill the fundraising gap so that access is not rationed because of lack of resources. They looked forward to a fuller discussion on initial experience with RSF arrangements, including in relation to scope and access, following the Spring Meetings.

SU/23/56,

April 10, 2023

The Acting Chair’s Summing Up— 2022 Review of Adequacy of Poverty Reduction and Growth Trust Finances Executive Board Meeting 22/32, April 4, 2022

Executive Directors welcomed the first Review of the Adequacy of Poverty Reduction and Growth Trust (PRGT) Finances since the comprehensive reforms were approved in July 2021. They agreed that the PRGT had provided unprecedented and critical support to low-income countries (LICs) during 2020–21, particularly to meet pandemic-related challenges. Looking ahead, Directors considered it essential for the PRGT to continue supporting LICs to facilitate sustainable post-pandemic recovery and to cope with adverse spillovers from the war in Ukraine.

Directors welcomed the robust shift from emergency financing in 2020 toward multi-year Fund engagement. While the immediacy of the health crisis and sudden drop-in global economic activity had necessitated an urgent response, they considered that close engagement under multi-year Fund-supported arrangements is better placed to lay the foundations for sustained recovery.

Directors expressed concerns that prospects for many LICs had been further disrupted by the war in Ukraine, with spillovers through pressures on food and fuel prices threatening social stability and food security, in addition to existing challenges. They considered that these adverse developments made it more likely that demand for concessional financing would remain elevated over the near and medium terms.

In that context, Directors were reassured by the expansion of LICs’ concessional borrowing space from the 2021 PRGT reforms. They underscored that PRGT arrangements could support LICs in developing appropriate policy responses to recent challenges. Directors also noted that the unprecedented increase in PRGT credit outstanding reduced the reserve account coverage ratio below its historical average and called for close monitoring. Directors welcomed staff’s assurances that the Board would be quickly alerted if the reserve coverage ratio is projected to drop below 20 percent. Moreover, they highlighted that risks from elevated lending levels should be mitigated by the Fund’s multilayered risk management framework, continued reliance on multi-year program engagement, and full implementation of the enhanced safeguards on debt sustainability and capacity to repay introduced in 2021.

Directors endorsed the resilient design of the two-stage funding strategy for the PRGT. While the Baseline lending scenario already allows for historically elevated lending until 2024, they welcomed that the strategy is sufficiently robust to accommodate a High Case scenario. Directors concurred that, if such a scenario arose, additional subsidy needs would be addressed in the second stage of the funding strategy, as part of the next comprehensive review of the PRGT planned for 2024/25. The further use of IMF internal resources, including gold sales, would be carefully considered at that time to ensure the longterm sustainability of the PRGT. Many Directors, therefore, saw merit in commencing early analytical work on the potential use of internal Fund resources ahead of the second funding stage, while some other Directors emphasized the importance of waiting to undertake this work during the next review. A few Directors underscored that extending the suspension of the reimbursement of administrative expenditures to the GRA for a longer period would be a low hanging fruit to strengthen PRGT finances.

Directors welcomed the generous pledges for loan and subsidy resources made by many members. They expressed concerns, however, about the significant shortfall in the pledges compared to the loan and subsidy targets for the first stage of the funding package agreed in July 2021, especially in view of upside risks to PRGT demand and the potential risks to the PRGT’s self-sustained lending capacity. In this regard, Directors encouraged economically stronger members to contribute to the agreed broad burden-shared funding campaign and redouble their efforts to make pledges in a timely manner, utilizing the flexibility available in timing and modalities as needed. Directors also urged strong continued engagement by staff and management.

Directors agreed that PRGT finances were evolving broadly in line with the 2021 assessment and that more time was needed for efforts to mobilize PRGT resources to meet the agreed first stage funding targets. They considered that, while contingent measures are not warranted at the current juncture, recent developments reinforced the importance of keeping the adequacy of PRGT resources under close review. If significant resource shortfalls were to emerge, Directors noted that corrective measures could be taken if deemed appropriate. They therefore looked forward to the next annual Review of the Adequacy of PRGT Finances, while calling for interim informal updates as needed.

Directors noted that the Catastrophe Containment and Relief Trust (CCRT) remains underfunded and emphasized the need for additional grant resources to replenish its cash buffer. They looked forward to the comprehensive CCRT review planned for FY2023.

SU/22/53,

April 7, 2022