In August 2021, the IMF agreed a historic $650 billion allocation of Special Drawing Rights (SDRs) to address global reserves needs during the Covid-19 pandemic (see Observer Autumn 2021). However, the allocation disproportionality benefitted rich countries, as SDR general allocations are based on IMF quotas, leaving 55 African nations with just 5 per cent (ca. $33 billion) of the total.

With climate finance pledges falling short of the promised $100 billion annually, and in response to the Bridgetown Initiative’s call to unlock trillions in climate finance, the G20 committed to ‘recycle’ $100 billion from their SDR allocations. As of December 2023, the established rechanneling pathways included the IMF’s Poverty Reduction and Growth Trust (the IMF’s concessional lending arm), multilateral development banks, bilateral arrangements, and the IMF Resilience and Sustainability Trust (RST).

Established in April 2022, the IMF’s RST uses rechanneled SDRs to generate concessional long-term financing, with the aim of contributing to low- and middle-income countries’ longer-term balance of payments stability when addressing climate change. At the 2023 Spring Meetings in Washington DC, IMF Managing Director Kristalina Georgieva praised the RST as “a clear signal that [the IMF] will not lose sight of the urgent need to address climate change,” by offering loans with a 20-year maturity and a 10½-year payment grace period (differing from the 3–5-year maturity of traditional IMF loans). In November 2023, reported pledges totalled $41.1 billion, and eleven countries had received RST loans. Responding to high demand, Georgieva announced plans in June 2023 to expand the RST by 50 per cent to $60 billion.

The RST should follow borrower countries' priorities, involve consultations with global civil society, not bring austerity at the expense of social services, and offer debt-free financing without policy conditions, avoiding Northern-led control.Tirivangani Mutazu, AFRODAD

The RST’s design flaws

After the 2021 SDR allocation, a group of almost 300 civil society organisations (CSOs) and individuals sent a letter to the G20 Finance Ministers, Central Bank Governors and the IMF calling for transparent and equitable SDRs rechanneling. Civil society has long argued that conditional support to lower-income countries, tied to austerity measures, privatisation of state assets and erosion of state capacity has persisted for four decades, effectively ‘kicking away’ these nations’ policy space and limiting crucial investments in social services and production capabilities. Seeking reparations for the affected countries, CSOs urged rechanneling based on debt-free financing, absence of policy conditionality, and supplementation of existing climate finance commitments.

Yet, in the rush to set up the RST, which happened without public consultation, hardly any of these criteria were considered (see Observer Spring 2022). The RST sets onerous eligibility requirements: For instance, countries must have a parallel “traditional” IMF programme adhering to “upper credit tranche” quality policies with at least 18 months remaining. Furthermore, access to the RST is capped at 75 per cent of a country’s IMF quota or SDR $1 billion, whichever is lower. As of July 2023, in the case of eligible countries, this cap limited available financing to only $16.1 billion, which is significantly lower than the RST’s reported pledges.

These worries are exacerbated by the operation of the RST as a credit facility amid widespread debt distress and a worsening climate crisis. Indeed, according to a recent database by Development Finance International, citizens in the Global South are experiencing the worst debt crisis on record. On average, 38 per cent of government revenue is absorbed by debt servicing, rising to 54 per cent in Africa.

IMF ‘green’ conditions and austerity: Relieving future balance of payments issues, or exacerbating them?

The RST introduces ‘green conditions’ tied to loans via public-private partnerships (PPPs), aligning with the IMF’s neoliberal approach to shrinking the public sector’s role through privatisation and fiscal consolidation (see Observer Spring 2023). This trend is evident in the RST’s programme country documents, which double policy requirements alongside another IMF programme. In Costa Rica, RST loans were linked to the implementation of the Public Employment Bill, resulting in a reduction in public sector wages. Barbados faced RST conditions aimed at diminishing public debt through reforms of state-owned enterprises. Bangladesh was pushed to pursue reforms aimed at lowering non-tariff barriers and domestic protection. Meanwhile, in Morocco, RST-backed reforms included the liberalisation of the state-owned electricity market, which the IMF justifies by citing a “conflict of interest, making it difficult for private operators to compete” (see Observer Winter 2023).

The IMF’s reliance on PPPs for the green transition raises concerns about meeting climate goals and adhering to just transition principles (see Observer Spring 2023). In this context, PPPs can be linked to green fiscal consolidation measures, drawing parallels with traditional IMF programmes widely-criticised, including by the Task Force on Climate, Development and the International Monetary Fund, for leading to “contractionary monetary and fiscal policies,” reducing public investments, and exacerbating social and environmental challenges. The risk of public debt from PPP-related contingent liabilities poses challenges for debt-distressed RST applicants, as they have the potential to drain fiscal resources needed for climate action while privatising gains (see Observer Spring 2023). Belgium-based CSO Eurodad contends this marks a shift from the Washington Consensus to what Professor Gabor has coined the ‘Wall Street Consensus’, emphasising market instruments at the expense of democratic ownership principles.

Will the RST course-correct?

Multiple reforms are being proposed, which would bring the RST closer to its stated climate objectives. Tirivangani Mutazu of Zimbabwe-based CSO AFRODAD argued the RST should follow borrower countries’ priorities, involve consultations with global civil society, not bring austerity at the expense of social services, and offer debt-free financing without policy conditions, avoiding Northern-led control. An interim review of the RST by the IMF Executive Board is expected in April 2024, presenting a critical moment for the RST to rectify its flaws.