Towards A More Robust And Equitable Global Financial Safety Net

The global financial system has been facing a series ofchallenges including high levels of indebtedness, climate shocks, inflation and higher-for-longer interest rates. In response, many have called for the international financial architecture to ensure a more equitable and resilient Global Financial Safety Net (GFSN), or sets of institutions tasked with providing emergency liquidity assistance to countries in need. Given the IMF’s vital role within the international financial architecture, a strong and effective GFSN with a quota-based International Monetary Fund (IMF) needs to be at the center of the Group of Twenty (G20) initiatives. While the IMF’s 16th General Review of Quotas resulted in an increase of IMF quota resources to $960 billion, the additional resources will replace borrowed resources and thus the IMF’s lending capacity will remain the same. Furthermore, the additional quotas are to be allocated equi-proportionally. Thus, the quota shares do not reflect the increased importance of emerging market and developing economies (EMDEs) in the global economy. These fundamental shifts in the global economy require an adjustment of the Fund’s quota formula to ensure better access to resources and more equitable governance. Any new formula-based reallocation applies only to the incremental quotas. So, this expansion of quota resources, without any change in existing shares, will make future reallocation of overall shares even more difficult. The increase in overall shares would have to be even larger. The G20 must issue a set of guiding principles for the IMF’s 17th General Review of Quotas. As the IMF considers changes to the quota formula, the G20 has a key opportunity to ensure a continuation of IMF governance reform to increase the voice and representation of EMDEs and to safeguard the most vulnerable IMF members. Such a renewed multilateral push for quota and governance reform at the IMF will help to strengthen the Fund’s legitimacy as a quota-based anchor of the GFSN, while also ensuring that it is sufficiently resourced to tackle the unprecedented risks in the global cconomy.