By Andrea Shalal
WASHINGTON (Reuters) -The International Monetary Fund's executive board on Wednesday approved creation of a new facility to help low-income and most middle-income countries deal with longer-term challenges such as climate change and pandemics.
IMF Managing Director Kristalina Georgieva announced approval of the new Resilience and Sustainability Trust in a statement after the board meeting, and said it would take effect from May 1, with a goal of raising at least $45 billion.
She said the trust would amplify the impact of last year's $650 billion allocation of IMF Special Drawing Rights by allowing richer members to channel their emergency reserves to allow vulnerable countries to address longer-term challenges that threatened their economic stability.
"This historic decision embodies the spirit of multilateralism," she said in a statement to Reuters. "It shows that when there is the need and there is the will, we can work together to achieve a significant outcome for the benefit of all."
IMF staff hammered out details of the new facility in recent months after it won the backing of the Group of 20 major economies in October.
An IMF staff paper prepared for the board and viewed by Reuters said nearly three-quarters of the IMF's 190 members would be eligible to borrow from the RST, the IMF's first facility set up expressly to help countries manage balance of payments risks posed by longer‐term challenges, the paper said.
"Today, even as IMF member countries confront the immediate challenges of rising inflation, constrained fiscal space and pandemic recovery — heightened by risks associated with the war in Ukraine — they are also calling on the Fund to help respond to longer-term challenges such as climate change and pandemic preparedness," the paper said.
Currently, the IMF offers low-cost and zero-interest rate financing to help countries deal with short-term challenges, such as capital flight, inflation or high commodities prices, and medium-term fiscal and financial challenges.
But until now it lacked a facility to help countries manage risk to balance payments posed by longer-term threats, and its Poverty Reduction and Growth Trust was open only to low-income countries.
The RST, first proposed by Georgieva last June, will fill those gaps, offering a broader range of countries affordable financing over extended repayment periods, with a 20-year maturity and a 10-1/2-year grace period. The IMF has said it plans to begin lending under the program by October.
The funding will be available to low-income and most middle-income countries, including all small developing states, the IMF said. Many of those states were hit particularly hard by the pandemic and its economic impact.
To qualify for lending from the new RST, countries would still need to develop "credible policy and reform measures," have sustainable debt and adequate capacity to repay the IMF, and be part of a concurrent IMF financing or non-financing program, such as its policy-coordination arrangements with Serbia, Rwanda and other countries.
The IMF staff paper said the eligibility criteria were set up to balance creditor and debtor needs, while mitigating financial risks to the fund.
The funding is also expected to serve as a catalyst for additional financing from the private sector, donors and other international financial institutions, the IMF said.
It said close collaboration with the World Bank and other international financial institutions would be critical for the success of the RST.