Cape Town — The International Monetary Fund (IMF) is warning that the frequency and magnitude of disasters like global warming is driving other, less visible, and disruptive crises in the short term while also carrying large longer-term economic risks, . And the exorbitant health costs of the Covid-19 pandemic are estimated to rise to U.S.$13.8 trillion during 2024.
In the face of these two crises, the global body called for investment in pandemic preparedness and response which can reduce the risk of events whose costs overwhelmingly dwarf current government budgets, as well as to discuss how the IMF's Resilience and Sustainability Trust (RST) aims to help low-income and vulnerable middle-income countries build resilience to external shocks and ensure sustainable growth, contributing to their longer-term balance of payments stability.
According to the Fund, the RST complements the existing lending toolkit by providing longer-term, affordable financing to address these longer-term challenges.
Covid-19, climate change notable risks to low-income countries
Financial recovery from Covid-19 will be as uneven as its initial economic impacts, with emerging economies and economically disadvantaged groups needing much more time to recover pandemic-induced losses of income and livelihoods, according to the World Bank. While, the IMF focuses on climate change having the potential to do significant economic harm, with a large number of lower income countries being particularly at risk. "Macroeconomic policies in these countries will need to be calibrated to accommodate more frequent weather shocks and infrastructure will need to be upgraded to enhance economic resilience," the IMF said in a statement.
Is the RST the silver bullet that can reduce the financial impact of both climate change and potential future pandemics?
RST in Rwanda a baseline for success in the rest of Africa?
With multiple programmes in Rwanda having received provisional approval under the RST, President Paul Kagame shared his thoughts on how the it may be a catalyst for the acceleration of additional financing. The initiative comes in the wake of the nation's launch of the U.S.$104 million green investment facility which will support the private sector in developing the climate-friendly economy.
"First of all, given the background of Covid-19 that devastated the economies, including the rich countries but of course imagine how bad it is for the weak economies right like some of us in Africa or small island states and and so on. So, we are in search of what to do to recover, but also to continue and we're doing what was needed even before Covid-19. So the RST helps me find a different approach, adding to what exists already said, thinking out of the box and neighboring countries to find resources to do what they were doing for to do better and more than today," Kagame said.
Kagame added that with the proper resources, critical gaps could be filled which would allow African economies to thrive. He went on to say that Covid-19 made economic recovery especially difficult for African nations and other developing countries. "The RST will help us to deal with current shocks in the climate, health shocks that I've experienced or even create resilience, of course, for what is expected and will come. Today we don't see key data to show what's around the corner, but you always want to think like there's something coming that you have to deal with in any case, so that helps create resilience."
To emphasize his point on providing resilience, Kagame called for support from partners to allow the nation to be better prepared for the economic effects of climate change and potential future pandemics. "It's again trying first of all, to take responsibility for ourselves. But at the same time, having done that, we want to tell our partners that if we can put this together ourselves, you should or should contribute to more towards it so that we are able to deal with these future challenges or the current ones in terms of climate or health the pandemics that have already happened tand hat are likely to come in the future," he said.
Kagame also called on the private sector to provide assistance and shared the level of progress already made. "Our target was U.S.$350 million dollars. So far have raised the above U.S.$100 million, so that's a good step forward." He also shared his belief that success of the RST in Rwanda would be proof it may work for the rest of Africa as well. "But we are just doing it as Rwanda but we are thinking about it in the context of how the African continent can also be benefit from this, and the small island states that are affected, broader. But I think we need to get started and get going if we can demonstrate that this works and works well then, I think to even invite more partners or maybe to step in and make their contributions," he said.
Private sector key advancing public good
Makhtar Diop, Managing Director of the International Finance Corporation (IFC), welcomed Kagame's remarks, particularly the emphasis on collaboration. "We need to mobilize more resources," Diop said. "A trust fund is extremely important for several resons. It will create the policies to crowd in more money from the private sector ... By working with the capital market, by working on the bond market and by creating the conditions for the financial sector to secure some seed funding."
Diop's participation in the RST discussion comes as the IFC established a new partnership among countries in the Caribbean, Latin America and Africa in order to boost the regional production of pharmaceuticals to strengthen health systems. "The role of the private sector is critical to strengthening healthcare by making supply chains more regional and resilient, especially in pharmaceuticals," said Diop.
"The IFC is already taking steps to support nations in the Africa and Latin America and Caribbean regions to build and grow their manufacturing capacity in pharmaceuticals and vaccines, and supporting this partnership only builds on that urgent mission."
Diop concluded by saying all those involved need to "leverage the private sector which needs to take more risks to advance the global public good".
An 'all hands on deck' approach necessary for success
Both creditor and borrower countries expressed enthusiasm for the RST, said Uma Ramakrishnan, Deputy Director of the IMF's Strategy, Policy, and Review Department.
"The RST is the fruit of a shared vision, responsibility and commitment of the international community to help low and vulnerable middle income countries overcome global policy challenges and enhance resilience," Ramakrishnan said. "It is a testament to what can be achieved when there is a massive collaboration effort across our shareholders, internal and external stakeholders and our partners in the among the international financial institutions."
The call for collaboration was echoed by Ngozi Okonjo-Iweala, Director-General of the World Trade Organization. "Trade can be a great facilitator for making things happen," she said. "You need the innovation to flow from where it is made, whether it's in developing or developed countries to where it's needed. You need the goods and services to flow and without trade, this simply cannot happen," Okonjo-Iweala said.
Hailed by the United Nations for its capacity to target compounded crises, including the war in Ukraine, the RST is also earmarked as a check to move the needle on climate change. IMF Managing Director Kristalina Georgieva said: "Why is this so important for the IMF? Because our institution has a very clear mandate, macroeconomic and financial stability, growth and employment, climate change climate shocks, undermine macroeconomic stability, undermine our ability to support countries to grow and improve the lives livelihoods of people."
The IMF aims to counter climate change's effects on economies with capacity building
The IMF has taken a hard line with regard to mitigating climate change. the global finance body said in an announcement: "We are putting climate at the heart of our work—from country, regional, and global economic and financial surveillance to capacity building, to helping small island states with fiscal strategies that build resilience. Containing global warming, known as climate mitigation, is a global policy challenge that we analyze through multilateral surveillance—because no country can address this issue on its own. For the 20 largest emitters, we now strongly encourage coverage of mitigation policies in our annual reviews of the health of a country's economy, called Article IVs consultations," the IMF wrote.
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These consultations relate to the finance body identifying pential risks and recommending appropriate policy adjustments to sustain economic growth and promote financial stability for nations.
Georgieva said the RST makes three important distinctions with regards to financing. "Number one, for the first time the international community through the resiliency, sustainability trust recognizes vulnerability as a criteria from concessional finance. We have gone a long way to be good stewards for the world's poor people by providing concessional finance to low income countries.
"Number two, the IMF provides concessional finance to countries on a global issue. Second, because we leverage our policy engagement, so when we work with countries and we talk about fiscal sustainability, or sound monetary policy, we integrate climate so it is part of that soundness of policy reforms.
"And number three, because we can leverage finance with other institutions and most importantly, with the private sector, here is our reality unless we change the trajectory of carbon emissions in emerging markets and developing economies now, by 2030, they would contribute 66% of the emissions, 20% more than they did some decade ago."
Georgieva added: "It's all hands on deck. For all of us. It is so critical that we help emerging markets and developing countries to transform to low carbon and climate resilient trajectory. Or otherwise, we are all cooked."
