The International Monetary Fund (IMF) has successfully raised over $100 billion in new financing from its buoyant advanced economies for the provision of soft loans to low-income countries to fight poverty and ensure sustainable economic growth.
The director of the IMF’s Communications Department, Julie Kozack, who disclosed this at the end of the COP28 conference in Dubai, United Arab Emirates said the new funding was raised through the Fund’s trust funds, especially the Poverty Reduction and Growth Trust as well as the Resilience and Sustainability Trust Poverty Reduction and Growth Trust.
The trusts are the Fund’s main vehicle for providing zero-interest rate loans to low-income countries apart from the mobilization of support from its economically stronger member countries, a significant share of which is channeled to its more vulnerable members through their special drawing rights (SDRs).
The SDR is an international reserve asset created by the IMF to supplement the official reserves of its member countries, particularly the vulnerable ones.
Since the Resilience and Sustainable Trust became operational over a year ago, Kozack said eleven member countries have benefited, while many others have expressed interest in accessing the financing, even as the IMF has given its assurance to continue to improve its lending going forward.
Kozack who expressed appreciation of the Managing Director of IMF, Kristalina Georgieva, for the pledge of $200 million by the UAE government to the Resilience and Sustainability Trust, announced the creation of the Loss and Damage Fund to support efforts to remedy the impact of climate change on the economies of its member countries.
She said the IMF participating in COP28 was anchored in three focal areas, namely carbon pricing, fossil fuel subsidies, and climate financing.
Based on the Fund’s analytical work, the IMF spokesperson said it called for a carbon price of $85 per ton, amid the increase and broadening coverage of carbon pricing.
On fossil fuel subsidies, Kozack said recent analysis revealed that current estimates showed about $1.3 trillion annually in explicit costs, adding that the removal of such subsidies was a critical step in decarbonization.
She said the IMF has recognized the need to step up financing for decarbonization, with much of the financing expected to come from the private sector and through coordinated action by multilateral development banks, like the IMF, playing a pivotal role.
On quota reform, Kozack recalled the approval of a proposal by the Executive Board in November for consideration by the Board of Governors for the conclusion of the 16th General Review of Quotas with a significant increase in IMF quotas.
Also, she said the Board proposed to develop, by 2025, approaches for further quota alignment that would better reflect members’ position in the world economy, while protecting the quota shares of the poorest members, adding that to improve and increase the voice of Sub-Saharan Africa in the representation of the IMF, a third chair for Sub-Saharan Africa on the IMF Executive Board would be created.
The Executive Board, she said, would soon examine a proposal to increase the annual access limits for its Poverty Reduction and Growth Trust by prospective beneficiaries.
On Nigeria, Kozack said the IMF expects the Central Bank to raise the controlling monetary policy interest rates during the next Monetary Policy Committee (MPC) meeting to sustain the current effort to mop up excess liquidity in the financial system which is a major contributor to the spiraling inflationary trend in the economy.
Since the last MPC meeting in July 2023, the monetary policy rate (MPR), which reflects the controlling lending rate for borrowing activities by banks, was reviewed from 18.5 percent to 18.75 percent, making it costlier for businesses to borrow.
Although the IMF acknowledged the reform initiatives by the Tinubu administration on fuel subsidy removal and unification of the official exchange rate for the Naira, it said the administration needed to do more to curb the current high inflation and the government-driven austerity, which have left many Nigerians in a very precarious economic situation.
Noting the negative impact of fuel subsidy, the IMF said, that apart from being too costly, especially for the budget, it was not well targeted to provide relief for vulnerable households, adding that unification of the official exchange rate for the Naira would remove the long-standing distortions of the multiple exchange rate system in the economy.
On inflation, the IMF pointed out that the current inflation rate of over 27 percent in October was too high, and therefore a need for more action by the CBN to redress the problem.
In its Article IV Consultation in February of 2023, the IMF said raising revenue from the current low revenue to gross domestic product (GDP) ratio of 9 percent was necessary to create fiscal space for social and development spending.
“Nine percent of GDP is a meager revenue-to-GDP ratio, and it is not high enough to be able to support strong social safety nets, and development spending, to help protect vulnerable households and also to meet Nigeria’s development needs. The 2024 budget aims to reduce the fiscal deficit, while also creating space for these priority spendings, both on the social side and also on the development side,” Kozack said.
