Resilience To Shocks
The IMF helps countries strengthen their resilience to shocks and bolster their institutions.
Resilience is essential for economic stability and prosperity, but it is at risk from global shocks and pressures, including global financial stresses, commodity price volatility, geopolitical events, pandemics, and climate change. Resilience also depends on sound policymaking and implementation, supported by solid institutions.
This year, the macroeconomically critical issue of climate change has become an increasing focus of the IMF’s work, both on policy instruments, surveillance, and CD products, and in working directly with countries.¹
The IMF has been helping countries narrow gaps between existing and needed policies to achieve the Paris Agreement’s temperature goals, including providing advice on carbon pricing and fossil fuel subsidies. It is reviewing its Climate Macroeconomic Assessment Program, which aims to assist countries, especially small and low-income countries, in building resilience and developing policy responses to cope with the economic impact of climate change. A new climate module adds a climate-responsive dimension to the IMF’s Public Investment Management Assessment framework and assesses countries’ capacity to manage climate-related infrastructure. The IMF staff issued operational guidance to governments on how to integrate climate-friendly perspectives into public financial management practices and processes and provided member countries with a number of CD initiatives. And the IMF and World Bank developed the Climate Policy Assessment Tool to identify optimal mitigation policy design.
The IMF has been working with its international partners to develop a high-level work plan for a new Data Gaps Initiative that includes recommendations for addressing priority needs related to climate change data, digital money, and other areas. To assist with data needs, the IMF expanded the suite of indicators available on its Climate Change Indicators Dashboard and added more user-friendly tools for accessing the data.
The World Bank–IMF Secretariat to the Coalition of Finance Ministers for Climate Action brings together fiscal and economic policymakers from more than 80 countries in leading the global climate response and in securing a just transition toward low-carbon, resilient development.²
¹ The IMF has also carried out analytical work on climate change. For instance, the October 2022 World Economic Outlook included analysis of the near-term macroeconomic impact of decarbonization policies, finding that if the right measures are implemented immediately and phased in gradually over the next eight years, the costs will remain manageable and are dwarfed by the innumerable long-term costs of inaction. The October 2022 Global Financial Stability Report assessed the challenges and opportunities associated with scaling up private climate financing in emerging market and developing economies.
² The IMF engages in the Coalition’s substantive work throughout the workstreams dedicated to carbon pricing (HP3), macroeconomic policy and public financial management (HP4), and financial policy (HP5) and in cross-cutting work on adaptation.
(temperature change in °C, scenarios used by the IPCC)
There is significant uncertainty about the trajectory of global emissions and as a result global warming.
Source: IPCC, 2021 Summary for Policymakers.
Note: Global surface temperature change relative to the period 1850-1900.
Resilience and Sustainability Trust
Designed to help low-income and vulnerable middle-income members address longer-term structural challenges that pose risks to their prospective balance of payments stability, the RST became operational in October 2022. The RST is intended to help member countries address longer-term challenges—including climate change and pandemic preparedness. The reforms implemented under the RSF arrangements, which are linked to concurrent IMF programs, help countries build resilience to external shocks by reducing risks to prospective balance of payments stability, including those related to climate change and pandemics. They also help create an environment conducive to private climate financing. During FY 2023, the Executive Board approved five RSF arrangements supported by the RST (for Bangladesh, Barbados, Costa Rica, Jamaica, and Rwanda) for a total of about $3.4 billion. Demand for RSF arrangements is strong and front-loaded: more than 40 additional eligible countries across different regions and income groups have expressed interest in, or have formally requested, an RSF arrangement.
RST resources depend on voluntary contributions from IMF members with strong external positions. Fundraising for the RST aims to secure SDR 33 billion (about $42 billion) in contribution agreements that include loan resources to meet expected loan demand as well as for adequate reserve coverage. As of April 30, 2023, pledges of SDR 25.5 billion (about $34.3 billion) had been received from 15 countries via contribution agreements that include loan resources; pledges of SDR 5.1 billion (about $6.9 billion) in stand-alone contributions (without loan resources) from two countries had also been received to bolster the RST’s reserves. Additional pledges are needed to cover a significant shortfall in loan resources to meet demand in 2023–24 and in the medium term.
The IMF has continued to collaborate with its member countries to strengthen their institutions and policies that support economic resilience. For example, the review of the Framework for Enhanced Engagement on Governance reaffirms the criticality of strengthening governance and addressing macroeconomically crucial corruption issues in domestic and transnational contexts. To strengthen government institutions and skills, the IMF is assessing its CD work, focusing on strategy, funding, delivery, and impact.
Other strategies are also underway. Working with its members, the IMF is implementing a strategy for fragile and conflict-affected states that is designed to strengthen its efforts to deliver more robust support tailored to these countries’ constrained policy space. The IMF is also implementing a government technology (“GovTech”) strategy to support the digital transformation of government fiscal operations and policy.¹ In addition, the IMF has issued guidance to support sound policymaking and implementation—for example, the PIMA Handbook: Public Investment Management Assessment.
Efforts to put in place effective policies for crypto assets are now a key policy priority, following the failure of various exchanges and other actors within the crypto ecosystem and the collapse of some crypto assets. In response, the IMF assessed the elements of effective policies in regard to crypto assets, noting the need for a comprehensive, consistent, and coordinated response.
¹ An IMF Staff Discussion Note found that digitalization helped shield productivity during the COVID-19 pandemic, but there was no significant structural change.
As of April 30, 2023, pledges of
had been received from 15 countries via contribution packages that include loan resources
The host of complex challenges currently facing the world calls for a shared and coordinated response.