The IMF’s Resilience and Sustainability Trust: How Conditionality Can Help Countries Build Resilience JOHN HICKLIN Abstract The IMF’s Resilience and Sustainability Trust (RST) has been operational for over a year, with the first seventeen countries receiving commitments of financial support. But if lending from the RST is to achieve its objectives, the IMF should make it fitter for purpose by taking a radically different approach in applying conditions to the loans. This paper first gives the background and summarizes the argument; sets out the unique challenges involved in designing best practice conditionality to deal with climate change – the focus of the RST so far; and makes three specific suggestions to address shortcomings in the emerging conditionality to make the most of the IMF’s new initiative to help member countries build resilience and sustainability. The IMF has adapted its approach based on initial experience. A forthcoming Executive Board review will allow for further course correction and much-needed greater traction for the RST. POLICY PAPER 324 • M A R C H 2024 The IMF’s Resilience and Sustainability Trust: How Conditionality Can Help Countries Build Resilience John Hicklin Center for Global Development The author is grateful for helpful conversations with David Andrews, Sanjeev Gupta, Kathryn McPhail, Mark Plant, and Etienne Romsom, and for comments from two anonymous reviewers; and is responsible for any remaining errors. John Hicklin. 2024. “The IMF’s Resilience and Sustainability Trust: How Conditionality Can Help Countries Build Resilience.” CGD Policy Paper 324. Washington, DC: Center for Global Development. https://www.cgdev.org/ publication/imfs-rst-how-conditionality-can-help-countries-build-resilience CENTER FOR GLOBAL DEVELOPMENT 2055 L Street, NW Fifth Floor Washington, DC 20036 1 Abbey Gardens Great College Street London SW1P 3SE www.cgdev.org Center for Global Development. 2024. The Center for Global Development works to reduce global poverty and improve lives through innovative economic research that drives better policy and practice by the world’s top decision makers. Use and dissemination of this Policy Paper is encouraged; however, reproduced copies may not be used for commercial purposes. Further usage is permitted under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License. The views expressed in CGD Policy Papers are those of the authors and should not be attributed to the board of directors, funders of the Center for Global Development, or the authors’ respective organizations. Contents A. Background and summary of argument..............................................................................1 B. The exceptional policy challenges posed by climate change....................................7 The urgency to address the exceptional risks of climate change.........................8 The exceptional size of the financing requirements.................................................10 The complexity of the domestic policy challenge...................................................... 11 The weakness of domestic accountability for climate change policies........................................................................................................................ 12 The failures in the global system of accountability................................................... 13 C. A more ambitious approach to RSF conditionality.......................................................14 Best practice conditionality................................................................................................ 15 Main features of RSF conditionality so far...................................................................16 Addressing the shortcomings of RSF conditionality................................................. 17 Issue 1. Maximizing RSF effectiveness through greater transparency and accountability.......................................................................... 17 Proposal 1. Establish a new mechanism for transparency and accountability...................................................................................................... 18 Issue 2. Increasing RSF effectiveness by focus on a few “IMF-focused” critical actions................................................................................ 21 Proposal 2. Focus more clearly on a few critical actions............................22 Issue 3. Increasing the urgen