Nigeria, others salivate to $50bn lifeline fund by IMF

The International Monetary Fund has said it is set to launch a $50 billion trust fund for low-income and vulnerable middle-income countries to help them build resilience to balance of payments shocks and set them on the path to sustainable recovery before the end of 2022.

The IMF disclosed this in a blog post titled, ‘A New Trust to Help Countries Build Resilience and Sustainability’ published on Thursday.

It said, “A proposed $50 billion trust fund could help low-income and vulnerable middle-income countries build resilience to balance of payments shocks and ensure a sustainable recovery.

“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.”

According to the Washington-based lender, the pandemic and climate change are challenges threatening macroeconomic stability and growth, and have a potential for future balance of payments problems.

It said these global public policy challenges are the shared responsibility of individual countries and the international community.

The IMF said it was considering how to channel some of the $650 billion Special Drawing Right (SDR) it issued in August from countries with strong external financial positions to vulnerable countries through a Resilience and Sustainability Trust.

The IMF said, “The RST’s central objective is to provide affordable long-term financing to support countries as they tackle structural challenges.

“As we’ve continued to work toward developing the RST, our current thinking on the key design features—which we outline further below—aim to balance the needs of potential contributors and borrowing countries.

“With broad support from the membership and international partners, we hope that the Trust can be approved by the IMF Executive Board before the upcoming Spring Meetings and for it to become fully operational before the year’s end.”

It added that about three-quarters of its membership could be eligible for RST financing, including all low-income countries, all developing and vulnerable small states, and all middle-income countries with per capita GNI below 10 times the 2020 IDA operational cutoff, or about $12,000.

It added that the aim of the trust was to address macro-critical longer-term structural challenges that entail significant macroeconomic risks to member countries’ resilience and sustainability, including climate change, pandemic preparedness, and digitalisation.

The monetary fund body said, “Like the IMF’s highly concessional and currently zero interest rate Trust for low-income countries, the RST would be established under the IMF’s power to administer contributor resources, which allows for more flexible terms, notably on maturities, than the terms that apply to the IMF’s general resources.

“Consistent with the longer-term nature of the balance of payments risks the RST seeks to address, its loans would have much longer maturities than traditional IMF financing. Specifically, staff has proposed a 20-year maturity and a 10-year grace period. A tiered interest structure would differentiate financing terms across country groups, with a high degree of concessionality for lower-income members.”