By Andrea Shalal

WASHINGTON (Reuters] – A paper prepared and reviewed by IMF staff shows that the International Monetary Fund is hoping to mobilise $45billion for a new trust in order to assist a wider array of countries including those with middle incomes, to combat climate change.

On Wednesday, the IMF executive board will approve the plans for the Resilience and Sustainability Trust(RST), which were developed by IMF staff following the October support of the Group of Twenty major economies in creating the instrument.

Nearly three-quarters of the IMF’s 190 members would be eligible to borrow from the new trust, the global lender’s first facility set up expressly to help countries manage balance of payments risks posed by longer‐term challenges, the paper said.

“Today, even as IMF member countries confront the immediate challenges of rising inflation, constrained fiscal space and pandemic recovery — heightened by risks associated with the war in Ukraine — they are also calling on the Fund to help respond to longer-term challenges such as climate change and pandemic preparedness,” the paper said.

The IMF currently offers zero-interest and low-cost financing for countries to address short-term problems such as inflation, capital flight or high commodity prices. It also provides financial and fiscal assistance in medium-term fiscal challenges.

However, it does not have the capability to aid countries in managing their risk of balance of payment posed by long-term threats or to build economic resilience to shocks. It also lacks opportunities to promote sustainable and inclusive growth.

Poverty Reduction and Growth Trust of the IMF is available only to countries with low income.

Kristalina Georgieva, IMF’s Managing Director, proposed the RST in June to fill this gap. It would offer affordable financing for countries with extended repayment terms and provide them with affordable financing. According to the IMF, it will begin lending in this program as soon as possible.

The program would be open to all low-income, vulnerable, middle-income countries. This includes small states which have been particularly hard hit by the economic consequences of the pandemic.

To qualify for lending from the new RST, countries would still need to develop “credible policy and reform measures,” have sustainable debt and adequate capacity to repay the IMF, and be part of a concurrent financing or non‐financing IMF-supported program, the paper said.

Apart from providing loans, IMF has also established policy-coordination agreements with Senegal, Rwanda, and Serbia that does not require funding.

According to the newspaper, eligibility criteria are set to preserve economic stability and to reduce financial risk to the fund.

A greater number of IMF members could donate their Special Drawing Rights to help the trust. These are the IMF’s currency reserves. The $650 billion IMF allocation was approved in August.

The paper stated that the funding will also be used as a catalyst to attract additional private or public finance.