Experts React – G20 Calls for a Resilience and Sustainability Trust at the IMF

International Monetary Fund, Washington D.C. Photo via Shutterstock.

In August, the International Monetary Fund (IMF) allocated $650 billion in Special Drawing Rights (SDRs), the international reserve asset of the IMF, to support liquidity and foster global economic resilience in the wake of COVID-19. To further these recovery efforts, a Resilience and Sustainability Trust (RST) was proposed, in part as a means of re-channeling SDRs to countries most in need. Currently, due to the IMF’s quota system, the SDRs will flow primarily to high- and some middle-income countries that don’t face the same liquidity challenges of other countries.

On Wednesday, October 13, the Group of 20 released a communique calling on the IMF to establish an RST to “provide affordable long-term financing to help low-income countries, small developing states, and vulnerable middle-income countries to reduce risks to prospective balance of payment stability, including those stemming from pandemics and climate change.”

As the IMF shapes this critical resource, what should it look like? How should it define eligibility, and what are mechanisms for sustained re-channeling of SDRs?

Members of the Task Force on Climate, Development and the International Monetary Fund, which recently published a policy brief on the topic, offer their expert reactions:

“Climate change is now in a constant state of acceleration and this spells economic and financial disruption and destruction while leaving behind devastation for the world’s most climate vulnerable developing countries. Climate change worsens what are already increasingly difficult cost of capital challenges and it accentuates the fact that the maturity of private capital to vulnerable countries is also in short supply. The RST can and should enable and accelerate the implementation of economic development strategies that help establish resilience at the heart of macroeconomic fundamentals while encouraging unprecedented global collaboration. The current programs in the IMF focus on dealing with financial shocks while the physical shocks caused by climate-fueled disasters have inadequate support. What this means is that the RST should not be confined for use for countries with existing IMF programs and should not have a limit of 100 percent of quota or $1 billion.”

“The only way for developing countries to meet the climate challenge head on is if they have the access to timely and adequate funds as well as expertise. The IMF plans for the Resilience and Sustainability Trust will help the Global South address both the COVID-19 and growing climate challenges in multiple ways. They will facilitate not merely funds via the IMF but also facilitate flow through other channels.”

“The RST must preserve the spirit of national determination that is central to the Paris Agreement on climate change. This means that the RST must be a vehicle to reinforce and support national commitments to achieve climate and development goals. Onerous conditionalities would go against this spirit.”


“The establishment of the RST is a bold and swift act of multilateralism that can help address a major gap in the international financial architecture—balance of payments support for climate shocks and green transitions.  It is paramount that the RST be up and running quickly in order to address the climate crisis, and that it not be laden with onerous conditions that will dampen demand for this urgently needed new facility.”

“A precondition for an effective RST is the integration of climate change into fiscal and financial risk management of governments and financial institutions. This, in turn, requires building capacity in ministries of finance, central banks and financial institutions such as the IMF and World Bank, to analyze the macrofinancial criticalities of climate change risks. We need to know to what extent, and through which channels, climate change risks stemming from climate-led hazards (the so-called “physical risks”), or from a disorderly transition to a net zero economy (the so-called “transition risks”), can affect macroeconomic competitiveness and financial stability. 
We need to quantify risks of climate change on the financial system, considering the fact that climate change is a new type of risk for finance: it is forward looking and endogenous. In this context, traditional finance models that rely on past prices and efficient markets hypothesis may not suffice because they may underestimate climate risks, leading to investor, policy and regulatory inaction. Finally, we need to analyze under which condition climate-aligned policies could lead to co-benefits for people, the economy and society.”

“The RST proposal marks a positive step towards increasing countries capacity to respond to climate change shocks by providing short term- financing together with longer-term financing for the investment needed for mitigation, adaptation and just transitions. The capacity to build resilience is not related to a country’s GDP level, or IMF programs, but rather to the degree of vulnerability of countries to climate change shocks. Hence, eligibility should be broad. Limiting access to countries with pre-existing IMF program will reduce its effectiveness in building resilience.”

“The proposed RST is a welcome initiative to support low- and middle-income countries vulnerable to transformational challenges. It should add to the Fund’s existing lending toolkit by providing longer-term financing at affordable terms. Wide consultations with stakeholders on the Trust’s objectives will contribute to the success of the initiative.”

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For more on the Task Force on Climate, Development and the IMF, visit the homepage.