The Resilience and Sustainability Trust helps countries prepare to deal with climate shocks. The Philippines, Zimbabwe, and Bangladesh are unlikely to qualify.
The International Monetary Fund has approved a $45bn fund to boost vulnerable countries’ climate resilience but the strings attached You risk excluding many countries in need.
The Resilience and Sustainability Trust is a trust that helps vulnerable countries and middle-income countries recover from the Covid-19 pandemic. Many are unable to plan for the future because of economic downturns and rising fuel and food costs.
The V20 coalition of vulnerable nations welcomed the trust, saying it plugs a gap in long-term concessional financing to address the climate crisis – but warned against imposing “prohibitive” conditions. One of the most restrictive criteria for eligibility for support is the requirement that countries have an IMF programme.
The IMF predicted that 70 countries would approach it for support in the next ten year. That assumption “will be completely out of reach” if the fund imposes such onerous conditions, Rishikesh Ram Bhandary, of the Global Development Policy Center at Boston University, told Climate Home News.
The RST is a way for wealthy nations to redistribute IMF relief (also known as special drawings rights (SDRs),) to poorer countries through long-term, low-interest loans.
To help combat the pandemic, SDRs were issued by the IMF to its member countries. The relief was distributed according to the size and income of the countries, so those with lower incomes received less than those with higher incomes.
The IMF stated in a press release that about three-quarters its members are eligible to receive financing under the trust. However, not all eligible countries will be eligible.
To be eligible, countries must demonstrate that they can repay the IMF’s loan and present a set of policy measures to how they would use it, such as carbon-cutting measures and adaptation measures.
Only 45 developing countries have an IMF program. This excludes some of the world’s most climate vulnerable countries including Vietnam, Bangladesh, the Philippines, Tanzania and Zimbabwe.
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Zimbabwe is one 23 African country that is in high or very serious debt distress. Janet Zhou (executive director of the Zimbabwe Coalition on Debt and Development) said that Zimbabwe is spending more on its debt than it is on climate and other protection measures.
Because its debt is deemed unsustainable, Zimbabwe isn’t eligible for an IMF programme and doesn’t qualify for support under the RST.
“This is not fair because it is the average citizens that are suffering from the incompetence of authorities,” said Zhou.
IMF officials hoped that the eligibility for RST support would make it more attractive to vulnerable countries to sign up to an IMF program when they created the trust.
These programmes do not target long-term threats like climate change, but they provide financial support to achieve short-term economic stability. Sometimes these measures are unpopular austerity measures.
The package of policy reforms a country needs to accept in exchange for financial support makes many countries “hesitant” to accept IMF support in the first place, Bhandary said.
“Perhaps what the IMF needs to understand is that going to the fund is not always seen as an attractive option. It’s not like going to the Green Climate Fund,” he said, in reference to the UN’s flagship climate finance initiative.
Constantino Marrengula, a Mozambican economist at the Eduardo Mondlane University in the country’s capital Maputo, has seen anti-IMF sentiment grow in his country.
At the end of 2021, Mozambique’s debt soared to 112.4% of its GDP. The country stopped spending on infrastructure and education. A shortage of medicines has led to a shortage in teachers and health care professionals.
“We are in such a situation that we cannot go without the IMF,” Marrengula told Climate Home, citing an agreement reached between the Washington-based fund and the government. The deal also includes plans for a sovereign wealth trust fund to generate revenues from gas exploration.
But many in Mozambique believe IMF-imposed policy reforms come at the expense of employment protection and people’s wellbeing, he said. “The losers are small businesses and people who only have their land,” he said.
Sara Jane Ahmed, of the Philippines and a financial advisor to the V20 group of vulnerable nations, told Climate Home that IMF criteria for accessing support from the RST will make it “a tough sell” for many vulnerable countries.
Countries that have undergone an IMF programme in the past “may not want to come back for another at this point,” she said.
The V20 is further concerned that the support, which comes in the form of loans, will deepen cash-strapped nations’ debt issues and have called for the interest payments to be subsidised for the most vulnerable.
“There is an opportunity to improve the usability of the RST, especially if the IMF opens a formal line of communication with the vulnerable countries,” said Ahmed.
The IMF did not respond to Climate Home’s questions.
Source: Climate Change News
