Member countries of the International Monetary Fund (IMF) were unable to reach an agreement on a US-backed funding plan. The terms entailed increasing IMF funding without allocating additional shares to China and other major emerging markets. However, they committed to a significant boost in lending resources by the end of the year.
As the IMF and the World Bank annual meetings concluded in Morocco, the chair of the IMF’s steering committee issued a statement requesting new quota contributions. This is aimed at maintaining the Fund’s current resource envelope. This comes as the $185 billion worth of bilateral borrowing arrangements expire.
Quotas by member countries in proportion to their shareholding constitute about 40 percent of the IMF’s lending capacity. The estimated value of this fund currently stands at $1 trillion. The IMF argues that a greater share of quotas would enhance lending as economic shocks grow.
China’s opposition
The U.S. Treasury funding plan gained support from G7 nations, India, and several emerging markets. This funding plan entailed that countries contribute new quota funds proportional to their current ownership stakes, which haven’t changed since 2010.
China, whose economy is now three times its 2010 size, continued to push for more IMF shares. In a statement to the IMFC meeting, Pan Gongsheng, Governor of the People’s Bank of China, articulated China’s desire for both an increase in quotas and a realignment of shares. That is to better reflect member countries’ relative weight in the global economy and enhance the influence and representation of emerging markets and developing nations.
IMFC members did reach an agreement to introduce a third chair to the IMF Executive Board, representing African countries. This was seen as an attractive element of the U.S.-supported “equi-proportional quota plan.” Pan acknowledged China’s support for this addition. However, he emphasized that it was a different issue from the shareholding formula.
Moreover, The IMFC chair’s statement did not rule out the potential adoption of the U.S. proposal. However, he suggested that “transitional arrangements” might be required. The statement also called upon the IMF’s Executive Board to present options for amending the share distribution formula by June 2025.
In addition, the move would expedite the next five-year quota review. It will also meet IMF Managing Director Kristalina Georgieva’s demand to maintain the IMF’s credibility.
A U.S. Treasury official stated that despite the absence of an agreement, progress was made on the quota matter. Countries were actively discussing their positions, and there was a growing likelihood of a deal being reached by October.
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Future expectations
In a statement, Georgieva highlighted the actions needed for global economic recovery. Despite the world displaying remarkable resilience, the process of bouncing back from the challenges of recent years is gradual and inconsistent.
She emphasized two priorities, the need to invest in strong economic foundations and in international cooperation.
In an economic environment with limited growth prospects, it is important to implement the right policies and reforms. Policymakers worldwide must establish solid economic foundations through effective policies.
Key elements of this approach include ensuring price stability, which not only fuels growth but also safeguards the well-being of vulnerable populations, particularly those in poverty.
Additionally, maintaining financial stability is crucial, given the current environment of enduring low-interest rates.
In addition to these foundational policies, transformational reforms play a vital role in boosting medium-term growth. Reforms include enhancing governance to combat corruption and streamlining regulations to facilitate business operations. Other reforms include promoting trade and access to capital, as well as increasing labor force participation, particularly for women. Such reform could potentially increase output levels by up to 8 percent in just four years.
Furthermore, Georgieva highlighted two major priorities for global cooperation, emphasizing the need for collective efforts. She mentioned the significance of climate and trade, focusing on two areas where the IMF is actively engaged.
Georgieva likewise emphasized the debt issue, stating that many low-income and emerging economies are facing debt-related challenges. Second, she emphasized the role of the global financial safety net, with the IMF acting as a lifeline during crises.
She highlighted the IMF’s need for strengthened resources and subsidies to support countries with lower financial buffers. She also emphasized the importance of adapting the organization’s governance structure to better represent global economic changes.
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