Five countries had loan packages approved under the IMF’s first sustainability fund, but concerns remain about whether it will boost resilience for the most vulnerable nations
Jamaica is the latest country to get IMF board approval for loans under the Resilience and Sustainability Trust (RST), following the acceptance of Costa Rica, Barbados, Rwanda and Bangladesh in the last six months.
The multi-million-dollar finance packages vary for each country, from $183 million for Barbados to $1.4 billion for Bangladesh, and recipients have different ideas of how they will spend the money.
The RST fund, set up last year, was aimed at redistributing affordable finance from rich to poorer countries, along with policy support to manage macro-economic climate risks. The IMF believes it can also catalyse essential private sector financing to boost climate action and to decarbonise financial markets.
Experts hailed the move as “pivotal” in helping vulnerable nations address the triple crises of debt, Covid and climate change, and said it could fill a gap in climate finance architecture.
Commenting on Jamaica’s $764 million agreement, Bo Li, deputy managing director and acting chair of the IMF board, said the funding would create incentives to “switch to renewables, reduce energy consumption, develop green financial instruments, and require proper management of climate risks in the financial sector”.
But there was concern that the strings attached would exclude many nations in need. Countries need to show they can repay the loan to the IMF, present a package of policy measures for how they would use the support, such as carbon-cutting and adaptation measures, and already have a programme of policy reforms with the IMF.
‘Major accomplishment’
Ronan Palmer, clean economy director for think-tank E3G, took “great heart” from the fact that RST money had so far been approved for a diverse range of countries, including fossil producers such as Barbados, and countries at significant physical risk from climate change such as Bangladesh.
“This shows that the trust does have capacity to reach across the issues in climate,” he said.
He said Jamaica’s loan could help protect it against climate risk “so vital in a country at increasing risk of Caribbean storms” and its economy from the risks of transition.
“A small economy like Jamaica will be very exposed to the kind of price and exchange rate pressures that could come as the world moves on from fossil fuels, or changes production patterns, [for example] in the shift to EVs from internal combustion engines.”
John Hicklin, non-resident fellow of the Center for Global Development and a former senior IMF official, wrote in a blog that getting this far was a “major accomplishment”.
But he said the conditions built into the loans would not necessarily help in their aim of helping countries become more resilient to external shocks and grow sustainably.
Austerity measures
Anaitee Mills, a sustainable development expert who helped develop Jamaica’s disaster risk financing policy, said the approval of that policy was one of the milestones it had to achieve to be able to draw money from the RST.
Other conditions, such as liberalising domestic power sectors or imposing strict public spending austerity measures, are more problematic.
Lara Merling, senior policy advisor at Boston University’s Global Development Policy Center, said the RST does not resolve existing structural problems with IMF funding. According to its own report, only about a third of IMF programmes are ever completed.
“All of these programmes are fiscal consolidation, austerity-based programmes,” said Merling. “So it’s not exactly the type of programme that creates an environment that’s favourable to more investment and climate investment.”
World Bank backs mega dam threatening to displace thousands in Mozambique
The IMF hoped to lend $30 billion initially through the RST, increasing to $50 billion in the medium term. The first five packages approve about $3.4 billion of loans.
As of the end of February, however, no money had yet been disbursed, because it is contingent on the completion of other IMF programmes.
One expert told Climate Home News there had been low uptake for the RST so far because it had not been designed with the interests of the countries that really need it. It is not available to those without existing IMF programmes and the quota system means smaller countries have little to gain.
Furthermore, it can add to the underlying debt burden. This, the IMF itself recognises, exacerbates a country’s vulnerability to climate impacts because “debt problems reduce fiscal space for climate mitigation and adaptation investments”.
‘Vicious cycle’
A recent UN Conference on Trade and Development (UNCTAD) report warns against “a vicious cycle of perpetual vulnerabilities and economic stagnation” across indebted economies on the front lines of climate change, saying the two issues have to b
Read More
