To help provide debt relief for low-income countries devastated by climate-related disasters, the International Monetary Fund must sell 4% of its gold, a study said, as climate finance dominates early talks at the COP29 summit.
The study said that selling 4% of the Washington-based bank’s gold would generate $9.52 billion, which would cover 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 such as the Covid-19 pandemic, leading to higher repayments to the lender of last resort in subsequent years.
Researchers from Boston University’s Center for Global Development said that although the IMF has a facility known as the Disaster Containment Relief Fund (CCRT), this only covers 30 poor countries and has only $103 million available.
The Disaster Containment Trust Fund is used to repay eligible member states’ IMF loans for up to two years, providing immediate relief and allowing those funds to be directed to other priorities.
“Many climate-vulnerable countries have not been able to access the CCRT because their eligibility criteria fail to take climate vulnerability into account… and funding is very limited,” the researchers said in a report.
The report said that the solution lies in selling part of the International Monetary Fund’s gold reserves amounting to 90.5 million ounces, while taking advantage of the high prices to strengthen the fund and cover more countries.
“With current gold prices exceeding $2,600 per ounce, selling a small portion of gold has the potential to generate significant revenues and easily replenish the CCRT Fund,” she said.
Gold was trading at $2,606.42 an ounce on Wednesday.
IMF gold reserve sales are rare. The most recent was in the period 2009/2010, when it disposed of one-eighth of its reserves, which resulted from the need to strengthen its lending capacity.
When it was created in 1944, member countries were accustomed to paying their IMF quotas in gold, meaning they accumulated reserves at a historical cost of just $45 per ounce, the research report said.
The report said that repaying IMF loans consumes a larger portion of the annual debt servicing costs of weak economies.
The report added that the island of Madagascar in the Indian Ocean will pay $106 million to the International Monetary Fund next year, a quarter of its debt service, rising to $158 million and 41% in 2026.
The researchers found that Mozambique would also see an increase in IMF disbursements over a similar period.
They said that any sale of IMF gold would require the support of the bulk of its Executive Board members, and that member states pledge to direct their share of the proceeds to the CCRT Fund.
“Replenishment of the Disaster Containment and Reconstruction Trust Fund should be considered a top priority because, in contrast to other IMF lending programmes, the Fund does not come without any conditions,” they concluded.