Costa Rica receives first loan under IMF’s green programme

Country is “excellent candidate” for Resilience and Sustainability Facility, says IMF official
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Costa Rica has become the first country to receive credit under the International Monetary Fund’s new Resilience and Sustainability Facility (RSF).

The IMF executive board approved a loan of 554.1 million special drawing rights ($726.7 million) on November 14. Three other countries – Bangladesh, Barbados and Rwanda – have signed preliminary agreements with the IMF for RSF deals.

Manuela Goretti, the IMF mission chief for Costa Rica, said the country was “an excellent candidate to pilot the RSF”, adding “Costa Rica has been a pioneer in greening its economy”. She said the country has won “international recognition” for its environmental policies. Costa Rica applied for the RSF loan in May.

The RSF loan will fund work in four areas, one of which focuses on the central bank and the financial sector. The other three include decarbonising the economy, infrastructure funding and accounting for climate-related factors in fiscal planning.

The IMF package also callson the Central Bank of Costa Rica (BCCR) to green its official reserves. The central bank pledges to “publish environmental indicators of its investment portfolio” in its next annual report.

Goretti said the central bank was working with the Network for Greening the Financial System (NGFS) and the IMF to construct these indicators. She added the environmental objectives would come “after the fulfilment of the investment objectives of liquidity, safety and return”.

The central bank is also collecting data on climate risks to commercial banks and pledges to include climate factors in stress tests. Costa Rica promises to have these regulatory tests ready by the end of February 2024.

The BCCR joined the NGFS in 2019. In its memorandum to the IMF, the central bank said it has established a group for strategic analysis of climate change. It also says it is working with the World Bank“to identify suitable indicators that can serve as a reference to measure and monitor climate-related risks”.

Costa Rica is also in a three-year IMF programme under the Extended Fund Facility (EFF). The IMF requires RSF borrowers to also be in another fund programme, though this does not necessarily require them to have an active loan.

The three-year EFF loan, approved in March 2021, is worth almost 1.24 billion special drawing rights ($1.63 billion). The executive board also approved the third review of that programme at its November 14 meeting.

Big problems fund

IMF managing director Kristalina Georgieva announced the opening of the RSF in October, to provide long-term funding for responses to climate change and future pandemics. The IMF offers RSF loans to “low-income and vulnerable middle-income countries”, which it says comprise approximately three-quarters of its 190 member states.

The facility draws from the Responsibility and Sustainability Trust, which is financed by donations from wealthier IMF members. These can include SDRs, and the IMF says the trust “will amplify the effect of the $650 billion general SDR allocation implemented in 2021”. As of October, the trust had 15.3 billion SDRs in funding.

RSF loans mature after 20 years, with a 10.5-year grace period. By contrast, EFF loans, the more common balance-of-payments support packages, are repaid over 4.5 to 10 years.

Traditionally, the IMF has focused on short-term funding to meet balance of payments crises or help countries struggling to access loans on open markets. The World Bank, or regional multilateral institutions like the Inter-American Development Bank, have historically focused on development credit.

Goretti said the IMF worked “in close consultation with the World Bank, Inter-American Development Bank and other development partners” to design the RSF. It would allow the IMF to “leverage on core areas of comparative expertise for the IMF”, while working in tandem with other lenders.

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