IMF approves Rwanda as first African beneficiary of new climate fund

By Julian Pecquet
Posted on Tuesday, 13 December 2022 10:54

On 12 December, the IMF approved Rwanda as the first African country to benefit from a new instrument to help poor countries tackle long-term structural challenges such as climate change.

Rwanda’s $319m loan under the Resilience and Sustainability Trust (RST) will help facilitate green public investment, mitigate financial risk and strengthen balance-of-payments stability, the IMF said in a press release announcing the board decision. The IMF previously approved Costa Rica and Barbados in October and November.

According to the IMF, the “RSF will support Rwanda’s ambitious agenda to build resilience to climate change and help to catalyse further financing”.

“Rwanda has become the first African and low-income country to benefit from the Resilience and Sustainability Facility (RSF), a recognition of the country’s commitment to strengthen its resilience to climate change,” Bo Li, the deputy managing director and acting IMF board chairman, said in a statement.

Rwandan President Paul Kagame, who is in Washington this week for the US-Africa Leaders Summit, will discuss the program’s potential benefits during a panel discussion on 13 December with experts. They include Kristalina Georgieva (IMF managing director), Ngozi Okonjo-Iweala (World Trade Organisation director-general) and Prime Minister Mia Mottley of Barbados.

Long-term challenges

The IMF launched the RST this year as a way to complement its existing toolkit of lending options for low-income and vulnerable middle-income countries to address longer-term challenges. This includes those related to climate change and pandemic preparedness.

The program does this by supporting policy reforms aimed at reducing macroeconomic risks arising from these challenges. It also seeks to increase financial buffers to mitigate prospective balance of payments risks, according to the IMF.

The RSF arrangement, underpinned by a strong reform package will help advance Rwanda’s efforts to build climate resilience.

By offering cheaper rates and longer maturities than traditional lending terms, the program presents more affordable financing opportunities for those countries willing to make “significant progress toward reducing critical risks related to the long-term structural challenge of climate change or pandemic preparedness”, as per the IMF. RSF arrangements have a 20-year maturity and a 10 ½ -year grace period during which no principal is repaid.

Low-income and vulnerable-middle income countries, including small states – about three quarters of the IMF’s membership – are eligible for financing under the program.

Reforms needed

Rwanda was approved after the country implemented a “sizable policy package to protect the most vulnerable against multiple shocks”, Li said.

Disbursements, however, are contingent on Kigali sticking to a 36-month Policy Coordination Instrument (PCI), also approved on 12 December, that sets out the schedule for reform measures and establishes Rwanda’s broad economic reform goals.

These include “timely adoption of domestic revenue mobilisation measures” and “the launching of a spending rationalisation strategy” to both guarantee the “credibility of the envisaged fiscal consolidation and to safeguard debt sustainability”, Li said. He also called on Rwandan authorities to “continue strengthening capacity to manage fiscal risks and adopt more effective and transparent public financial and investment management practices”.

In addition, “more decisive monetary tightening” by the National Bank of Rwanda is deemed necessary to “contain inflationary pressures, while ensuring greater exchange rate flexibility remains key for external stability”. Li also urged continued monitoring of the financial sector “to ensure risks remain contained while deepening financial markets and promoting financial inclusion.”

“The RSF arrangement, underpinned by a strong reform package will help advance Rwanda’s efforts to build climate resilience,” Li said. “The reforms under the RSF are expected to strengthen and institutionalise monitoring and reporting of climate-related spending, integrate climate risks into fiscal planning, improve the sensitivity of public investment management to climate-related issues, strengthen climate-related risk management for financial institutions, and strengthen […] disaster risk reduction and management. The RSF is also expected to catalyse further climate finance from official and private sectors.”

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