Developing country finance ministers have called for the International Monetary Fund’s Resilience and Sustainability Trust to become truly concessional, amid concerns that not all countries can easily use its support because of the interest rates.
The Trust channels special drawing rights from rich members to help poorer ones build resilience to shocks including climate change and pandemics. It has a fundraising target of $42bn.
The RST’s interest rate structure is at the top of the substantive changes developing countries want to see. “That needs to be addressed,” Ryan Straughn, minister of finance and economic affairs for Barbados, told GlobalMarkets. “It really should be concessional in order to help [countries] build resilience.”
Although the 20 year loans available from the RST have a 10.5 year grace period and the lowest rates available to developing countries, these rates are no longer low.
For the lowest income countries, the RST rates are around 2.5%, while more developed countries have to pay around 5.6%.
Barbados leads the Bridgetown Initiative, a campaign whose demands include more climate resilience funding for vulnerable countries.
“We’ve been advocating that if you’re going to do concessional lending, it has to be concessional, full stop,” said Straughn. “Otherwise, it really erodes your fiscal space.”
Opened in May 2022, the RST is the IMF’s main long term climate finance facility. For many climate-vulnerable countries it could not have come sooner. “The RST was the right instrument at the right time,” Hekuran Murati, Kosovo’s finance minister, told a panel at the annual meetings.
Kosovo has the world’s fifth largest lignite reserves and is struggling with the high cost of decarbonisation. It has used the RST to help end blanket energy subsidies, replacing them with targeted subsidies for the most vulnerable.
But it is not straightforward for some countries to access the RST. States must have a functioning IMF programme. “Countries that don't have these programmes have to put one in place,” said Mark Plant, COO of the Center for Global Development Europe. “That’s a six to eight month lift.”
This potential delay is serious, since one of the aims is to give governments fiscal space to implement difficult policies, such as lowering subsidies and even raising the price of carbon.
Kenyan officials said that at last month’s Africa Climate Summit in Nairobi, participants discussed how carbon taxes and even carbon pricing could be implemented. “The number one priority area for reform is to incorporate climate risk into fiscal planning and even the investment framework,” Njuguna Ndung’u, Kenya’s finance minister, told the panel.
Plant said getting the policy mix right on taxation and other climate-friendly policies was an area where the IMF could help. But he said there was a strong argument that countries should be able to access financing for their climate agendas without submitting their entire economic policymaking apparatus to IMF scrutiny.
Photo courtesy of OECDtax