GDP Center Round-Up: The 16th General Review of Quotas at the International Monetary Fund
By Sayuri Kataoka and Samantha Igo
The International Monetary Fund (IMF) is scheduled to conclude its 16th General Review of Quotas this month, a process designed to bring the IMF’s governance system in light with current realities of the global economy. The IMF’s quota system determines the financial contribution of member countries, the distribution of voting power at the IMF and access to financing mechanisms and Special Drawing Rights (SDR) allocations, or the IMF’s international reserve asset.
From identifying structural inequalities in the Global Financial Safety Net (GFSN) to elevating voice and representation of emerging market and developing economies (EMDEs) in key decision-making processes at the IMF, a suite of research from the Boston University Global Development Policy Center (GDP Center) seeks to underscore how the 16th General Review of Quotas presents a key moment for the IMF to potentially reassert its legitimacy as a global financial institution and lender of last resort.
Below, see a summary of the latest research on IMF quota reform:
The Global Financial Safety Net Tracker
Reform of the international financial architecture has become a pivotal issue in 2023, particularly as EMDEs face pressures from all sides: high interest rates, an increasing cost of capital, growing sovereign debt burdens and climate and geopolitical shocks.
The Global Financial Safety Net (GFSN) – a network of institutions including the IMF, regional financial arrangements (RFAs) and central bank swaps – is the critical component of the global financial architecture where countries can turn for liquidity financing in times of crisis. However, research shows that the GFSN is under-resourced, and the distribution of resources within the GFSN is uneven and unequal, as many countries only have access to a small portion of the GFSN or limited options altogether.
To better understand the state of the GFSN and the potential impacts of proposed reforms, the Global Financial Safety Net (GFSN) Tracker, co-produced by the GDP Center, Freie Universität Berlin and the United Nations Conference on Trade and Development, is the first interactive that allows users to explore current and historical data on global crisis finance.
Newly updated with data through July 2023, the GFSN Tracker data underscores three key trends: lower and upper middle-income countries have the least access to crisis finance resources from the GFSN, there is inequitable access to regional funds across income groups and geographic regions, and higher-income countries have access to a disproportionately higher amount of crisis finance in the GFSN. Explore the data and read the blog.
Counting on the International Monetary Fund: Aligning the IMF Quota System with Global Need
The 16th General Review of Quotas presents the IMF with an opportunity to not only increase the size of its quota-based resources in order to respond to global crises but also provide EMDEs with more voice and representation.
A report by William N. Kring and Haihong Gao presents the key lessons that emerged from a December 2022 workshop on IMF quota reform hosted by the GDP Center. It outlines concrete steps for IMF shareholders to ensure that the IMF remains a legitimate, quota-based anchor of the GFSN. These principles include consistently conducting General Reviews of Quotas, scaling up resources, reforming composition to permanent and quota-based resources, and accurately reflecting the economic weight of dynamic EMDEs in the global economy. Read the report.
Closing the Global Crisis Finance Gap: Why and How the IMF Should Address Weaknesses in the Global Financial Safety Net
Many low- and middle-income countries are struggling with deteriorating debt sustainability and external shocks, including the economic repercussions of the COVID-19 pandemic, Russia’s war in Ukraine and the tightening of monetary policy in advanced economies. Amid these developments, it is crucial to explore whether the world – and its most vulnerable countries – is well prepared to buffer balance of payment difficulties caused by systemic shocks.
In a recent policy brief, Laurissa Mühlich and Marina Zucker-Marques explore the status of the GFSN and demonstrate how its structural inequalities could be reduced by reforming facilities and funding of the IMF. The authors provide two possible estimations to assess how much additional funding the IMF would need to provide in order to address the inequalities of the GFSN. They find that IMF quotas of low-income countries and middle-income countries would need to, at the very least, double to address the current structural gaps in the GFSN and at least triple to meet their gross external financing needs in case of a systemic shock. Read the policy brief.
No Voice for the Vulnerable: Climate Change and the Need for Quota Reform at the IMF
In 2021, the IMF committed to incorporate climate-related issues into its operations and is in the process of developing frameworks and policies. The IMF’s governance structure will impact the decision-making process on how these frameworks will be developed, with the quota system based on countries’ economic share will determine formal voting power.
In a working paper, Lara Merling illuminates how decision-making power is distributed within the IMF, as well as the implications of the quota share on the IMF’s lending practices, fee structures and distribution of newly allocated reserves. The paper finds climate vulnerable countries have negligible formal decision-making power over how the IMF frames its policies around climate. Read the working paper.
Quota Reform Is an Opportunity for the IMF to Restore Its Legitimacy
As the global economy confronts a myriad of challenges, the prospects for long-term growth and economic recovery look increasingly bleak. However, the IMF has a chance to rebalance itself during the 16th General Review of Quotas.
In an op-ed for the OECD Development Matters Blog, William N. Kring, Marilou Uy, Rakesh Mohan and Haihong Gao write that the failure to enhance the IMF’s quota resources to boost its lending capacity, an over-reliance on temporary borrowed sources of funding, and further delays in increasing EMDE voice and representation all serve to undermine the legitimacy and credibility of the institution. They argue that agreeing to just an equiproportional increase in quotas would perpetuate the current imbalances in IMF governance and would undermine the legitimacy of the IMF in the eyes of the Global South. IMF shareholders must redouble their efforts to restore credibility and legitimacy to the institution and rebalance the GFSN to support the needs of the global economy. Read the op-ed.
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