IMF’s $50bn trust fund for low, mid-income countries, Nigeria too
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The International Monetary Fund (IMF) has proposed a $50 billion trust fund which could help low-income and vulnerable middle-income countries to build resilience and sustainability as the coronavirus pandemic continues to bear heavy strain on the global economy.
The IMF revealed that the proposed fund could help low-income and vulnerable middle-income countries build resilience to balance of payments shocks and ensure a sustainable recovery. It also said the trust fund is part of its options for channelling some of the $650 billion Special Drawing Rights (SDRs) issued in August 2021 to countries with strong external financial positions, as well as vulnerable countries, through a Resilience and Sustainability Trust (RST).
“Even as countries continue to battle COVID-19, it is crucial not to overlook the longer-term challenge of transforming economies to become more resilient to shocks and achieve sustainable and inclusive growth. The pandemic has taught us that not addressing these long-term challenges in a timely manner can have significant economic consequences, with the potential for the future balance of payments problems.
“The RST will support such a collaborative effort. We will build on our experience of working with the World Bank and other international institutions and regional development banks, complementing their lending to provide the best support to member countries.
“Climate change is another long-term challenge that threatens macroeconomic stability and growth in many countries through natural disasters and disruptions to industries, job markets, and trade flows, among others,” it said.
IMF further revealed that three-quarters of its membership could qualify for the RST financing which includes all low-income countries, all developing and vulnerable small states and middle-income nations with per capita gross national income below 10 times the 2020 operational cut-off of about $12,000 in its 2020 International Development Association (IDA).
For Nigeria, she falls within the category as a potential beneficiary as the gross national income (GNI) per capita in the country which was reported based on the World Bank collection of development indicators and was reported at $2,157 in 2019.
In order qualify for the RST financing support from the Fund, the IMF said an eligible member would need a package of high-quality policy measures consistent with the RST’s purpose; a concurrent financing or non-financing IMF-supported programme with appropriate macroeconomic policies to mitigate risks for borrowers and creditors, and sustainable debt and adequate capacity to repay the Fund.
It further noted that access to the financing would be determined on a case-by-case basis, and based on the strength of reforms and debt sustainability considerations, which is expected to be capped at 150 percent of IMF quota or SDR 1 billion, whichever is smaller. It also said RST lending would be part of a broader financing strategy members would pursue to address the longer-term balance of payments risks, involving a mix of multilateral, bilateral official, and private financing.
While noting that collaboration is essential for the success of the Trust, the IMF said “Mitigating economic risks from long-term structural challenges requires a consistent and deliberate approach, with strong commitment from policymakers to undertake sometimes difficult reforms. And where such commitment is evident, the international community can help with affordable financing, capacity building, and policy advice.
It said the success of the Trust will depend equally on economically stronger IMF members providing meaningful resources to help countries improve long-term resilience and sustainability; borrowers willing to go the extra mile to achieve the macroeconomic environment and reform framework conducive to improving the balance of payments stability; other international financial institutions supporting with their expertise, knowledge, and financing where feasible.
“These actions would also help mobilize private sector investment. Faced with a range of long-term structural challenges that require global action, it has never been more important to support all countries to tackle these challenges at an early stage and achieve sustainable growth. The RST could help achieve this goal,” the Fund noted.