To help provide debt relief to low-income countries devastated by climate-related disasters, the International Monetary Fund (IMF) should sell 4% of its gold, study suggests, as climate finance dominates first discussions of the COP29 summit.
Selling 4% of the Washington-based lender’s gold would generate $9.52 billion, the study said, covering debt relief for 86 countries.
From the Caribbean to Africa, low-income countries have turned to the IMF in recent years for support in the face of shocks like the COVID-19 pandemic, leading to increased repayments to the lender of last resort over the following years.
Although the IMF has a mechanism known as the Catastrophe Containment Relief Trust (CCRT), it covers only 30 poor countries and has only $103 million, researchers at the Global Development Center said from Boston University.
The CCRT is used to repay an eligible member state’s IMF loans over a period of up to two years, providing immediate relief and allowing these funds to be targeted to other priorities.
“Many climate-vulnerable countries have been unable to access the CCRT because its eligibility criteria do not take climate vulnerability into account…and funding is very limited,” the researchers said in a report.
The solution lies in selling part of the IMF’s 90.5 million ounces of gold reserves, the report says, taking advantage of high prices to strengthen the fund and cover more countries.
“With current gold prices exceeding $2,600 per ounce, selling a small fraction of gold has the potential to generate significant revenue and easily replenish CCRT,” he said .
Gold was trading at $2,606.42 per ounce on Wednesday.
Sales of IMF gold reserves are rare. The last time was in 2009/10, when it offloaded an eighth of its reserves, following the need to increase its lending capacity.
When it was established in 1944, member states paid their quotas to the IMF with gold, the research report said, which meant the system accumulated reserves at a historic cost of just $45 per ounce.
IMF loan repayments represent a larger share of the annual debt servicing cost of vulnerable economies, the report said.
Madagascar, an island in the Indian Ocean, will pay $106 million to the IMF next year, a quarter of its debt service of $158 million and 41% in 2026, the report added.
Mozambique will also see an increase in IMF repayments over a similar period, the researchers found.
Any sale of IMF gold would require the support of most of its board members and commitments from member states to return their share of the proceeds to the CCRT, they said.
“Replenishment of the CCRT should be considered a high priority because, unlike other IMF lending programs, the CCRT does not come with any conditionality,” they concluded.