Webinar Summary – The IMF’s Resilience and Sustainability Trust: Can an SDRs Trust Managed by the IMF Deliver Inclusive and Sustainable Recoveries?

By Lara Merling

On April 11, the Boston University Global Development Policy Center co-hosted a panel as part of the 2022 International Monetary Fund (IMF) and World Bank Spring Meetings Civil Society Policy Forum. The panel, featuring global experts and advocates, explored the IMF’s proposal to establish a Resilience and Sustainability Trust (RST) as a mechanism to re-channel Special Drawing Rights (SDRs) to vulnerable countries, contrasting this proposal to the principles put forth by civil society for a fair re-channeling of these resources.

As moderator of the event, Chiara Mariotti, a Senior Policy and Advocacy Officer at the European Network on Debt and Development (Eurodad), summarized the background of the IMF’s historic allocation of $650 billion worth of Special Drawing Rights (SDRs) and the debate surrounding how to re-channel these resources, as the allocation was distributed to member countries proportional to their IMF quota shares. About two-thirds were given to wealthy countries who didn’t share the same liquidity bottlenecks that emerging market and developing economies faced during the COVID-19 pandemic, and thus, questions arose over how and through what mechanisms advanced economies could re-direct their windfall to support the recovery efforts of countries most in need.

Urged by the Group of 20 (G20), the IMF proposed the establishment of an RST as a new lending facility to provide long-term financing for countries seeking to build resilience against future pandemics and act towards climate goals. Mariotti discussed how the RST will function within the greater climate finance architecture and how countries could count any contributions to this Trust as a piece of their climate finance pledges to developing countries. She also highlighted the proposal from Barbados Prime Minister Mia Mottley, which called for regular SDR issuance in support of climate finance and the misalignment of the RST with that vision.

Andres Arauz, Senior Research Fellow at the Center for Economic and Policy Research (CEPR) and former Director General of Banking at the Central Bank of Ecuador, answered the first question on how countries have, so far, made use of their SDR allocations. Citing research from a recent CEPR report, he makes the case that the $650 billion SDRs, even without further reallocation, is already a success. Arauz notes that over 99 countries have made use of their SDRs – overall, 42 countries used the equivalent of $17 billion for balance of payment support, 68 countries used $78 billion for fiscal support and $8.4 billion were used to repay debt to the IMF.

However, quoting IMF Managing Director Kristalina Georgieva’s call for ambition, Arauz said the RST does not deliver. Instead, he agrees that Prime Minister Mottley’s proposal for recurring issuances of $500 billion in SDRs for climate finance is an idea that is sufficiently ambitious.

Next, Vimal Thakoor, Senior Economist at the IMF, agreed that the SDRs did increase fiscal space as a first round of impact, with a potential second round impact from re-allocating SDRs. Following that, the focus of the IMF has shifted to examining ways in which countries with strong external positions can recycle their SDRs for maximum impact. According to the IMF, the RST and linking it to countries implementing long-term reforms is the answer.

During the panel, Thakoor announced that the Executive Board of the IMF would vote on the RST in the coming days and provided an overview of the proposal that will be presented to the board. (The RST was approved two days after this panel, and $40 billion in pledges have so far been announced). The RST was designed as a third pillar of IMF lending, meant to complement IMF lending through its existing instruments. Thakoor underscored that the vision for the RST is to provide additional resources for health and climate resilience building to countries that have “strong fundamentals” according to the IMF and are implementing structural reforms the IMF deems to be appropriate.

The substantial need for financial support for climate vulnerable countries was emphasized by Sara Jane Ahmed, Sustainable Finance Advisor to the Vulnerable Group of 20 (V20) Ministers of Finance. Ahmed pointed out that the RST can play an important role in enhancing the finance available, but there are still details that need clarification. These include the type of reforms it will require, as well as opening channels for formal dialogue with the V20 regarding their needs and concerns.

Ahmed drew attention to the IMF’s long history of programs and reforms that have imposed fiscal consolidation and left countries less resilient. For the RST to deliver, she said the voices and plans of vulnerable countries must be central to establishing the reforms it will finance. Beyond that, Ahmed also warned that the RST does not address the issue of mounting debt but risks compounding it with additional loans.

Father Charles Chilufya, the Justice and Ecology Director for the Jesuit Conference of Africa and Madagascar brought an important moral dimension of these debate. Father Chilufya emphasized that these are conversations about real people who are facing a dire situation of poverty and hunger. He highlighted that only 5 percent of the SDR allocation has gone to Africa, despite having two-thirds of the world’s poor and some of the harshest climate-related disasters.

Father Chilufya called for ensuring SDRs are re-channeled through vehicles that can deliver relief and poverty reduction. He stressed the need to be creative when responding to the climate crisis and not forgetting the ecological debt and differential responsibilities of wealthy countries that owe support to developing countries.

Throughout the Q&A session with the audience, many voiced doubts over how more debt can be part of the solution. Others emphasized the conflict between the short-term advice the IMF offers in programs and the long-term structure and goals of RST loans.

In concluding remarks, Father Chilufya urged for SDRs not to be thought of in strictly abstract terms – this is a discussion about people and their livelihoods. Arauz’s final remarks highlighted the level of inequality in how SDRs have been allocated by noting that if wealthy countries donated just 25 percent of their SDRs, it would be sufficient to repay the IMF debt of all countries.

Lara Merling is a Senior Policy Advisor, Global Economic Governance Initiative at the Boston University Global Development Policy Center.

 The event was co-sponsored by African Forum and Network on Debt and Development, Bretton Woods Project, Caritas Africa, Catholic Agency for Overseas Development -UK, Center for Economic and Policy Research, European Network on Debt and Development, FEMNET, Financial Transparency Coalition, Global Policy Forum, GCAP, Initiative for Social and Economic Rights, International Trade Union Confederation, Jubilee Debt Campaign (UK), Jubilee USA Network, Latin American Network for Economic and Social Rights -LATINDADD, Oxfam International, Recourse, Social Justice in Global Development, Third World Network, WEED. 

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