Picture: REUTERS/JOHANNES CHRISTO
Picture: REUTERS/JOHANNES CHRISTO

Washington — The IMF should create a new instrument that lets richer countries channel their newly created IMF reserves to help a broader set of countries tackle the Covid-19 pandemic and climate change, a new task force said on Monday.

IMF officials have sought for months to rally support for a new Resilience and Sustainability Trust (RST) that its members could use to donate or lend their share of $650bn in newly issued special drawing rights (SDR) to low- and middle-income countries — as an alternative to the Poverty Reduction and Growth Trust, which can be tapped only by the poorest countries.

The issue will be a big topic when IMF member countries meet during the global lender’s autumn meetings later this month, but some countries have been reluctant to back the proposed trust, arguing that it would move beyond the scope of the IMF.

The Task Force on Climate, Development and the IMF, launched on Monday, urged support for the new trust, saying the global lender’s actions are vital to helping countries better address the rising toll of climate change.

Global damages from extreme weather events totalled more than $6-trillion over the past two decades, and will reach an estimated $298bn in 2021 alone, with a single weather event costing small island states about 100% of GDP, the report reads.

The consortium of experts, convened on Monday to aid the ministers of finance from the Intergovernmental Group of Twenty-Four (G24) and Vulnerable Group of Twenty (V20), said the IMF has a “central role to play in the transition to a low carbon and resilient global economy”.

“Sustained rechanneling of new SDR issuances into [the RST] could form an essential part of the climate and development finance landscape in emerging market and developing countries, said the experts, who hail from institutions such as the Boston University Global Development Policy Center, the African Economic Research Consortium, and Peking University.

They welcomed a June pledge by the Group of Seven rich economies to rally about $100bn in resources for countries in need, but said far more funding would be needed.

Even before the pandemic, experts estimated that emerging market and developing economies need to raise at least 2% of their GDP to meet their climate goals annually year until 2030, but the pandemic has further complicated the situation with big debt overhangs and higher borrowing costs.

To help countries reach a net zero economy by 2050, the new trust should offer short- and long-term financing options, while helping countries respond to climate shocks without sharp increases in their debt levels, the group said.

The IMF could also help by encouraging countries to incorporate fiscal buffers for climate-related risks in budget planning, which would help build up disaster, reserve or contingency savings, they said.

Reuters

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