Opinion: How the IMF can help the Caribbean when disaster strikes
*This opinion article was submitted to the CMC by the IMF’s Deputy Managing Director, Tao Zhang.
(CMC) – We are nearing the end of another tragic hurricane season. The dead are being mourned, lives have been shattered, and the arduous rebuilding has to begin. There is no question that recovering from a major hurricane is a daunting task.
Overcoming the challenges posed by ever-more frequent and severe hurricanes is a task no Caribbean country can accomplish alone. Regional and international cooperation holds the key to secure a quick disaster response, unlock much needed financing, and build a more resilient economy.
The purpose of the International Monetary Fund (IMF) is to serve the demands of its members—all 189 countries. A major part of what we do is to provide financing. We have a flexible lending toolkit to cater to the demands of the membership. Some countries request financing to resolve an imminent economic crisis; others turn to IMF financing to address more protracted challenges that require tackling structural issues.
But what about countries that are hit by an external shock like a natural disaster? A hurricane, for example, can throw a country off its economic trajectory and quickly open sizeable financing needs to reconstruct its economy. Fast and affordable financing is crucial, often to address spending associated with the first response and rebuilding.
In these situations, the membership can use the IMF’s Emergency Assistance facilities. Almost all Caribbean countries are shareholders of the IMF, and member countries can rely on IMF financing on attractive terms.
Six countries in the region can access such financing at concessional terms (zero-percent interest for the Rapid Credit Facility), while the others can do the same at relatively low rates (for the Rapid Financing Instrument). And more recently, the IMF increased the amount it lends to countries for such emergencies. For example, Caribbean countries hit by large natural disasters can borrow, on average, up to 2.2 percent of gross domestic product (GDP) in a single transaction.
Most importantly, these emergency facilities are simple to access, bear no policy conditionality, and are expedited for consideration by the IMF’s Executive Board in a matter of weeks. For instance, in 2015 Dominica was able to receive financing from the IMF within two months following tropical storm Erika. Once approved, the funds are fully disbursed immediately with no additional monitoring.
Over the past five years, the IMF’s emergency assistance helped fifteen countries overcome the effects of earthquakes (Ecuador, Nepal), diseases (several African countries hit by Ebola)—and hurricanes (Comoros, Dominica, Haiti, Mozambique, Vanuatu). In many, the IMF’s financing played a critical role in the recovery and was catalytic in securing broader support from the international community.
In striving to become a more agile institution ready to meet the demands of its diverse membership, the IMF’s lending facilities have also become more diverse. With climate change placing an increasing burden on small economies, tackling its effect becomes a shared responsibility of the global community, and the IMF will continue to do its part. We remain open to partnering with all members to serve their needs, and to better prepare for future hurricane seasons.