I move: "That the Bill be now read a Second Time."
As Deputies will be aware, the International Monetary Fund, IMF, is an institution that promotes international monetary co-operation and provides policy advice, technical assistance and loans to help countries build and maintain or restore their economies. The global financial crisis and the Covid-19 pandemic have demonstrated that the fund's financing needs can increase rapidly, which can test the IMF's ability to fulfil its role at the centre of the global financial safety net using shareholding known as "quota" resources alone.
The purpose of this legislation is twofold. In the first instance, the Bill seeks the approval of the Oireachtas to adhere to the IMF’s new arrangements to borrow, NAB, a decision under which economically strong member countries provide loans to the fund to supplement its resources. The Bill will also facilitate grant contributions by the State to both existing IMF trust funds and to any new ones that may be established. Trust funds provide financial and technical assistance to IMF members to help address important structural issues. They also provide debt relief and concessional financing to vulnerable, low-income countries.
In short, the objective of this legislation is to enhance Ireland’s support for the IMF in carrying out its critical global mandate. Having been the recipient of crucial IMF assistance in the recent past at a time of grave economic difficulty, I believe that there is a real and compelling obligation on Ireland to support the fund in providing resources to other countries in need. By participating in the NAB and by providing for future contributions to trust funds, Ireland will play its part as one of the world's most prosperous economies in bolstering the fund. This legislation presents a strong signal of Ireland’s commitment to the IMF by ensuring that it continues to have sufficient resources to adequately support its membership.
In more general terms, the Bill attests to Ireland’s strong and enduring support for multilateralism. The IMF’s new arrangements to borrow, which we are considering today, is a temporary arrangement which acts as a second line of defence for the fund. Under the NAB, a number of the strongest economies with sufficient financial capacity agree to make available resources to the IMF in the form of credit arrangements up to specified amounts. These loans can be activated in specific circumstances where the fund needs to supplement its quota resources for lending purposes.
The NAB has its origins in the mid-1990s Mexican financial crisis when there was a concern that the IMF might require substantially more resources to respond to future financial crises. As a result, the G7 called on financially strong countries to develop financing arrangements to bolster the resources available to the fund. This led to the creation of new arrangements to borrow, which first became effective in November 1998. In total, 25 member countries joined the NAB at its inception, committing additional resources to the IMF totalling approximately $48 billion.
The first real test of the NAB came with the global financial crisis in April 2009. In the face of a sharp increase in the demand for IMF financing, the G20 leaders agreed to triple the total resources available to the fund to $750 billion. This decision effectively expanded the NAB from $48 billion to almost $600 billion. The IMF relied heavily on NAB participants to support its response to the financial crisis, which was clearly demonstrated by the fact that the fund drew on these arrangements on ten occasions between April 2011 and February 2016. Despite the challenges that the fund has faced at times, including during the considerable financing demands created by the Covid-19 crisis, the NAB has not been activated since 2016. Ireland’s participation in the NAB was initially signalled in 2009 to 2010, following a decision by the European Council and Economic and Financial Affairs Council, ECOFIN, ministers to endorse the G20’s agreement to triple the IMF’s resources. This was based on our economic performance at that time. Accordingly, two Government decisions were secured in January 2010: the first was to approve a bilateral loan facility to the IMF of €1.3 billion and the second was to approve Ireland's participation in the NAB.
The provision for the bilateral loan agreement was included in the Finance Act 2010. Preparations to legislate for Ireland’s adherence to the NAB were also initiated. However, following Ireland’s entry into an IMF programme in December 2010, the bilateral loan agreement with the IMF lapsed without taking effect. The legislation to provide for Ireland’s participation in the NAB was not pursued. Consequently, while Ireland confirmed its intention to participate in the NAB in 2010, we never formally adhered to the NAB decision, the technical term for sanctioning participation. As a result, we have been classified as an inactive or a prospective participant in the NAB since that time.
Despite the considerable demand for IMF assistance during the Covid-19 pandemic, the fund's resources remained resilient and recourse to the NAB credit arrangements was not deemed necessary. Since the outbreak of the pandemic in March 2020, the IMF has provided critical support to its membership, including emergency financial assistance totalling over €170 billion to 93 countries.
The NAB is vital in assuring that supplementary resources are available to the fund for extended periods. This is essential in order to preserve the IMF’s credibility and effectiveness in promoting economic stability and global growth. There is a general expectation by the IMF and its members that countries with strong economies make their resources available in a collective effort to help those which are experiencing economic difficulties, whether that be through the NAB, through bilateral lending or through supporting IMF trust funds. Most of the world's major economies do their part in strengthening the IMF's resources through the NAB, including China, India, Japan, the UK and the USA, as well as 15 EU member states. Since Ireland completed repayment of its IMF loans in 2017, there has been an expectation on the part of the fund and the EU member states that Ireland would actively re-engage with the NAB.
On the substance of the Bill, the legislation provides for Ireland's adherence to and participation in the IMF's NAB decision. In order to formalise our participation, Ireland must adhere by depositing an instrument of adherence with the IMF. This confirms that, in accordance with its law, the State has taken all the necessary steps to enable it to carry out the terms and conditions of the NAB decision. Given the NAB decision constitutes an international agreement, the approval of the Oireachtas is necessary to allow the State to formally adhere to the decision. This Bill provides for Ireland’s adherence to the 2020 NAB decision, the text of which has been appended to the Bill as a Schedule.
Under this agreement, Ireland will make available to the fund a credit arrangement of an amount, denominated in special drawing rights, SDRs, up to the equivalent of approximately €2.37 billion, which will be provided by the Central Bank of Ireland. Given the role of the Central Bank in facilitating Ireland's participation in the NAB decision, sections 1 to 4, inclusive, fall within the competence of the European Central Bank. As a consequence, the Minister for Finance referred this legislation to the ECB in late December 2021. I am happy to confirm that in January, the ECB issued a formal opinion advising that the provisions relating to the NAB decision fall within the exemption from the EU treaty's prohibition on monetary finance.
As for how the NAB operates, the managing director of the IMF may make a proposal to establish what is referred to as an activation period, during which the fund may call on NAB participants to provide resources. Once a call has been made, NAB participants have a finite period to transfer these resources to the fund. Any proposal to establish an activation period requires a vote in favour by an 85% majority of total credit arrangements and participants and the approval of the IMF executive board. Furthermore, any subsequent call on an NAB credit arrangement will take account of each participant's economic circumstances and its capacity to make the resources available during the relevant period.
The current 2020 NAB decision took effect on 1 January 2021 and is due to lapse on 31 December 2025. The NAB is subject to periodic renewal and, since the original NAB decision was adopted in January 1997, it has been renewed on eight occasions. Under the terms of the NAB decision, an agreement on whether to renew or modify the NAB must be reached not later than 12 months before the end of December 2025. As such, we can anticipate these negotiations are likely to start in earnest in 2024. In the course of these negotiations and all future renewals, the terms and conditions of the NAB decision may be altered. This includes the size of the credit arrangement to be provided by Ireland, which may increase, decrease or remain unchanged. In order to facilitate Ireland's participation in future NAB decisions, Members will note section 2 includes a mechanism for Ireland to provide the necessary consent.
The other principal objective of the legislation relates to providing for grant contributions to IMF trust funds. A clear distinction should be drawn between the role played by the NAB and that played by trust funds, as well as the nature of Ireland's contributions to both. By contrast with the NAB, trust funds in the IMF and other international institutions do not use the institution's own resources to provide financial assistance. Instead, they usually rely exclusively on direct contributions from one or more donors, earmarked for a specific use, which are pooled to provide assistance to countries in need, often on concessional terms. The limited number of trust funds established by the IMF use donor resources to provide technical assistance and capacity development, as well as concessional lending and debt relief. A number of these, such as the poverty reduction and growth trust, PRGT, to which Ireland contributes, played a vital role in the IMF's response to the Covid-19 pandemic. The catastrophe containment and relief trust, CCRT, a trust fund to which Ireland is not currently empowered to contribute, was also utilised extensively during the crisis.
As for Ireland’s support for these initiatives, previous Bretton Woods legislation has provided for payments from the Central Fund to IMF trust funds. Of specific interest to us in the context of this Bill is the provision in the Bretton Woods Agreements (Amendment) Act 1999, which facilitated grant contributions to an aggregate limit of IR£20 million to the IMF enhanced structural adjustment facility trust, subsequently renamed the PRGT. Following a significant contribution to the PRGT in 2017, this limit, which equates to just over €25 million, has almost been reached. As it stands, Ireland has no legislative basis for making further payments to the PRGT or any other IMF trust fund. This has put us in a difficult position in respect of meeting our obligations as an economically strong member of the IMF, at a time when the fund is seeking assistance from countries such as Ireland.
Due to the strong demands placed on fund resources earlier in the pandemic, the IMF managing director, Kristalina Georgieva, sought to replenish both the PRGT and the CCRT to ensure they would be adequately funded for future needs. In July 2021, she wrote to the Minister for Finance, in his capacity as Ireland's governor of the IMF, requesting that Ireland consider providing a grant contribution to the PRGT, as we have done previously. Similar fundraising requests were received from the managing director for the CCRT in March 2020 and May 2021. In each response, the Minister advised the managing director a legislative amendment would be required before Ireland could consider any contributions to either trust fund. The Bill provides this legislative basis. By providing for future grant contributions to the PRGT and the CCRT up to a maximum aggregate sum of €50 million each, the legislation will also allow us to respond swiftly to future crises, to play our part as an active and supportive member of the international community and to contribute towards Ireland’s target of reaching the overseas development assistance, ODA, target of 0.7% of GNI by 2030.
The Bill also contemplates grant contributions to other IMF trust funds, whether established or yet to be established. The rationale for this provision is to ensure Ireland can react appropriately in supporting targeted fund responses to future crises. Any proposed contributions to such trust funds will be subject to the approval of a ministerial order by both Houses in the first instance, followed by a resolution by Dáil Éireann to approve the payment. Ireland's participation in the NAB will be in the form of a credit arrangement provided by the Central Bank, which the fund will repay with interest after a maximum of ten years. By contrast, contributions to trust funds are in the form of grant aid, with no expectation of repayment, and are therefore generally considered to be eligible as ODA.