The IMF’s Resilience And Sustainability Trust

Credit: IMF

What is the Resilience and Sustainability Trust?

In response to the unprecedented economic crisis spurred by the global Covid-19 pandemic, the IMF issued a general allocation of Special Drawing Rights equivalent to $650 billion in August 2021 to bolster its members’ liquidity and balance-of-payment positions. However, since SDRs are allocated based on the Fund’s quota structure in which rich countries hold a much larger share, the amount going to low-income countries was miniscule and calls for advanced economies to channel their unused SDRs to countries in greater need became impossible to ignore. In response to this pressure and the IMF searching for a concrete contribution to climate and pandemic response efforts that could be announced by the 2022 Spring Meetings, the Resilience and Sustainability Trust (RST) was created, together with its attached financing facility (RSF) – the IMF’s first lending instrument with an explicit climate (and yet-to-be-developed pandemic) focus, whose concessional loans carry a unique 20-year maturity and longer grace periods, and whose debt sustainability analyses (DSAs) are required to employ newly-developed climate modules. 

Since then (and because the IMF climate strategy has only a single paragraph on lending), the RST has become the Fund’s primary avenue for addressing climate change and the process of setting it up and designing the attached loan conditionalities has become a way for IMF staff to ‘learn by doing’ and more or less ‘build the plane of the Fund’s climate approach as it flies’. This has two crucial implications: One, it means scrutinising the RST is a key avenue for understanding how the IMF conceptualises its role as a lender in the context of climate change, and what it considers quality reforms. And two, it means there is a great risk that the IMF’s climate work will be pigeonholed to the RST rather than mainstreamed across all lending – and that other loans will continue with the ‘business as usual’ short-term orthodox approach that might undermine countries’ climate action.

So far (January 2025), $46.8bn has been pledged to the RST (of which $40.6bn were effectively transferred), resulting in $16.7bn USD usable loan resources of which $10.4bn USD remain after commitments to 20 RSF programmes so far. Based on defined per capita income and population thresholds, some 143 countries – or three-quarters of the IMF’s members – are eligible to receive financing through an RSF arrangement. Access under the RSF is limited to 150% of a country’s IMF quota or up to SDR 1 billion, whichever is smaller. Just as with the SDR allocation, this means that advanced economies with higher quota shares can borrow much larger amounts while smaller countries – and particularly highly climate vulnerable small island developing states – can borrow very little. 

The existing programmes are overwhelmingly aimed at increasing fiscal space for climate action. Another 30 to 35 countries have expressed interest. Of the 211 reform measures (RMs) in the first 18 programmes, only a very small share has focused on transition (3%), with one half spread evenly between adaptation (25%) and mitigation (24%), and the other a mix of all three (48%). These include, for example, integrating climate change considerations into public financial management, public private partnership (PPP) frameworks, carbon taxes, energy subsidy ‘reform’ (elimination), financial sector climate risk management, mobilising climate finance, and expanding social safety nets; in addition to sectoral reforms, e.g. of water and electricity markets.

Why does the RST matter?

As loan programmes under the RSF come with policy conditionalities and require a parallel ‘traditional’ upper-credit-tranche (UCT) IMF programme (without climate focus and regardless of whether they are facing any short-term balance of payment challenges which would normally prompt a UCT) that also has conditions, the RSF gives the Fund considerable power over shaping countries’ climate policy as well as their fiscal and macro policies that in turn impact the leeway available for climate action. This is problematic for two reasons: One, for the specific ‘climate’ reforms the IMF champions and their distributional impacts, and two for the requirement of an additional parallel program which in combination often lead to ‘green fiscal consolidation’ and contradictions between conditions – such as requiring both climate investments as well as public spending cuts, or promoting green industrial diversification while also condoning continued fossil fuel extraction in order to pay back debt. 

One of the RSF’s most frequent policy prescriptions is the elimination of energy and fuel subsidies, aligned with the IMF’s long-standing championing of carbon pricing as the most efficient climate ‘solution’. Several RSF programmes push towards explicit carbon pricing (e.g. Kenya, Morocco, Paraguay, Cote d’Ivoire), and 15 (75% as of 2024) called for energy price increases or subsidy elimination. However, energy subsidies are often a de facto universal social programme and price increases worsen inflation, harm poorer households, and have led to severe backlash. Mitigation measures like social spending floors or targeted transfer programs are rarely effective, and carbon pricing as a whole has been questioned for its complexity, lack of political buy-in, and likely socio-economic fallout. 

For more on this, head to the Austerity vs. Climate section of:

The IMF’s Work on Climate

It is crucial that the IMF reconsider the nature, timing and pacing of energy subsidy removal to minimise such adverse socio-political costs by systematically integrating a just transition lens and distributive impact assessments into its analysis, as well as accompanying subsidy phase-out with long-term sustainable renewable energy policy strategies. Domestic resource mobilization is essential for financing green transformation policies; however, it needs to be pursued through progressive means. As a first step, a guidance note on sectoral issues should be developed at the Fund, to provide staff with clear guidance on how to address distributional (and gendered) impacts arising from interventions in the energy and water sectors, and to ensure they are held accountable for the impact of their recommendations and alignment with just transition principles.

‘Reform measures’ (RMs, the name for conditionalities under the RSF) are meant to be country-owned, try to align with countries’ existing Nationally Determined Contributions (NDCs) and National Adaptation Plans, and the overall level of ambition of RSF programmes seems to be increasing. Nevertheless, there is still significant room for improvement in systematically aligning RMs with existing strategies so that they amplify and add momentum to them, as well as expanding the definition of country ownership to wider public dialogue. Loss and damage projections are integrated neither in programme design nor in IMF resource adequacy projections. There are currently no specific criteria for high-quality RMs (beyond their “depth”), merely including a heterogeneous list of examples considered ‘good policy’, making it hard to measure impact and create accountability for RMs. RSF programmes are also not quantifying how their conditionalities contribute to a 1.5°C pathway, nor to wider climate resilience and adaptation. Thus, countries may be presented with a laundry list of policies without a framework to judge their merit and trade-offs, which – given the Fund’s lack of dedicated climate expertise and overall orthodox macro approach – are likely to be biased towards fiscal austerity rather than maximizing climate and development impacts. In 2024, the RST was reviewed but with little progress on this, suggesting some approaches to evaluate the effectiveness of RMs but without a 1.5°C lens.

Quality criteria for RSF reform measures should be developed urgently and focused on how RMs align with a 1.5C pathway and countries’ existing climate plans.

The required combination of an RSF and UCT programme means countries have to enter into another set of policy conditionalities narrowing down their policy space and leading to difficult trade-offs, which are emblematic of the wider challenges of aligning long-term climate investment needs with the IMF’s common short-term fiscal consolidation prescriptions. For example, in Senegal and Cameroon the RSF did not address the need to transition away from their reliance on fossil fuel exports, while the successful payback of the concurrent UCT programme relies on those very fossil exports to generate foreign exchange revenue. Since the Climate Strategy does not include any guidance on lending, it is also not clear if and how climate impacts should be addressed in loan programmes that are not connected to the RSF, which means it is likely that these impacts remain un-measured and excluded from programme design considerations in the majority of IMF lending.

Abolishing the requirement for a parallel UCT program is an essential first step, and indeed has been recommended by civil society and leading experts since the very beginning of the RST’s development. The IMF’s climate lending remains relegated to the RST without substantially reflecting on the essential policy trade-offs and inconsistencies with other non-climate conditionalities. It is high time for the Fund to abandon its ‘green fiscal consolidation’ approach in favour of policies that prioritise just transition goals, investment-led growth, and publicly steered green industrial transformation. Even in countries without an RSF but a ‘traditional’ IMF loan, comprehensive climate and just transition impact assessments should be part of the macro policy package, to understand the long-term impact on climate investments.

Ending any endorsement of fossil extraction as a means to generate public revenue should be a prerequisite for the IMF to engage on climate – together with a realistic assessment of the transition requirements and debt scenarios of fossil fuel exporting countries.

The IMF closely collaborates with the World Bank whom it views as the “climate expert”, and the design of RSF reform measures is very reliant on the Bank’s Country Climate Development Reports (CCDRs). This raised concerns that RMs will end up pursuing a similar logic centred on private interests, such as through the privatisation of state-owned enterprises, public-private partnerships, and an overall focus on catalysing private finance. This is especially the case for sectoral policies (e.g. for energy, water, transportation, 25% of RMs as of 2024), where the IMF admits to relying heavily on the Bank and remains firmly focused on privatisation and liberalisation of the power sector. For example, Morocco’s RST reforms were closely aligned with the World Bank’s 2022 CCDR, which in turn seems to bear the handwriting of the EU’s push for green hydrogen development, raising concerns that energy transition investments are driven by EU interests rather than Morocco’s developmental or climate interests. The privatisation or ‘unbundling’ of state-owned energy and utility companies “can lead to a more fragmented energy sector and make it difficult for states to retire fossil fuel-based sources of energy without incurring large compensation claims from foreign investors”.  Even the IMF’s own research suggests that “in the case of energy-sector privatization, […] reforms lead to higher emissions across all measures, including GHG emissions per unit of GDP”.

All five initial RSF programmes (Bangladesh, Rwanda, Barbados, Costa Rica and Jamaica) have also promoted the increased use of public-private partnerships (PPP) for climate action, such as simplifying private participation in renewable energy sectors, despite previous IMF research and the RST’s own 2023 guidance note warning of the hidden costs of such arrangements whose contingent liabilities could undermine states’ future balance of payments situations.

Aligned with the IMF’s 2023 flagship reports suggesting that developing countries should introduce financial policies that would mobilise private capital, the RSF is supposed to take on a “catalytic” role to crowd-in more private climate finance, while the Fund admits at the same time that few developing countries have investment-ready pipelines – coming at the heels of significant evidence that the “Wall Street Climate Consensus” of private finance raising through public IFI funds is simply not working, beyond its questionable equity and climate justice implications (see here, here and here). Early evidence on the RST suggests a similar failure in attracting private finance, with almost all additional funding leveraged coming from other MDBs and some bilateral donors.

The primary non-price measures the RST pursues are “establishing strong PPP frameworks” and “introducing frameworks for green-bond issuance and trading” – ignoring non-pricing measures such as green industrial policy, emission and efficiency standards, permits and quotas, R&D subsidies, as well as capital control measures, let alone social protection and other crucial aspects of a just green transition.

Rather than clinging to the unsuccessful but hegemonic mantra of derisking unwilling investors into climate finance while turning more and more essential infrastructure and the natural environment into asset classes, the IMF could play a catalytic role by encouraging financial regulation that would align capital allocation with green transition objectives, something it has been unwilling to do. Such a new policy regime – using public taxonomies, mandatory disclosure, and new public credit policy coordination agencies – would coordinate fiscal, monetary, prudential, and industrial policy to actively support green industrial transformation.

Not only is the RSF itself debt-based, but it also adds on further debt through the parallel UCT programme, becoming yet another instrument through which an institution dominated by rich economies determines Southern countries’ policy space. At least seven of the RSF programme countries have seen a major increase in external debt service ratios (to GDP) since the pandemic, suggesting that the ‘popularity’ of the RST – often used by the Fund as evidence of its success – may simply reflect countries’ desperation for accessing any kind of climate finance under dire circumstances. 

For an extensive look into how debt, climate, and fossil fuel extraction are interconnected, head to the Debt “sustainability” vs. sustainability of life section of:

The IMF’s Work on Climate

Hundreds of civil society groups have called for a transformation of public finance for climate action for decades, and proposals for debt workout and relief mechanisms for a just green transition abound, including from the V20, UN Secretary General, academia, and civil society. The Fund should align itself with these demands and push far more decisively for debt restructuring, relief, and reprofiling, as well as to increase debt-free international public climate finance under the Common but Differentiated Responsibilities principle.

At the time of the 2021 general SDR allocation, the civil society and academic community developed a range of proposals both for immediate rechannelling of SDRs to countries in need and for changing the way SDRs are allocated in the first place to be more just, so that rechannelling becomes unnecessary in future. The $650 billion issuance was widely used by over a hundred countries for fighting the pandemic, and there was no reason that rechannelled SDRs would have to take the form of loans or carry conditionalities. Senior economists still consider issuing SDRs more regularly a “no-brainer for global growth” Yet, because the RST was set up specifically as the SDR rechannelling tool, the Fund essentially took the opportunity of controlling this potential source of concessional finance to become the designer and arbiter of countries’ climate policies. This way, the RST’s establishment has also narrowed down the space for more ambitious rethinking of the role of SDRs, and redistributive efforts around rechannelling instead now have resulted in an instrument that imposes two layers of conditionality.

Regular and more equitable SDR allocations could be a welcome source of condition-free (climate) financing for poor countries, including e.g. an SDR allocation specifically devoted to loss and damage, and an adjustment of accounting rules for SDRs to ease their exchange and donation. At COP26 in 2021, Barbados prime minister Mia Mottley called for an annual $500 million SDR allocation to finance the green transition.