Luxembourg to Contribute to IMF's Recovery & Resilience Trust

From Thursday 13 to Saturday 15 October 2022, Luxembourg's Minister of Finance, Yuriko Backes, travelled to Washington DC in the United States (US) to participate in the Annual Meetings of the International Monetary Fund (IMF) and the World Bank.

Against the background of the polycrisis, marked by the Russian invasion of Ukraine, the significant rise in inflation, fears for food security and the slowdown in the world economy, this was an opportunity for Minister Backes to reiterate the Luxembourg's determination to assume its responsibilities on the multilateral level and to present itself as a reliable partner on the international scene.

In this context, Minister Backes announced Luxembourg's intention to participate in the IMF's new flagship instrument, the "Recovery and Resilience Trust", the objective of which is to support vulnerable countries in dealing with their structural challenges. Moreover, within the framework of an exceptional meeting of the Eurogroup, Luxembourg's Finance Minister exchanged views with several of her counterparts as well as senior representatives of the international financial institutions present in Washington. She also took the opportunity to sign agreements with the World Bank and the International Finance Corporation (IFC), thereby extending Luxembourg's contribution to targeted support programmes for developing countries.

An exceptional meeting of the Eurogroup, in the presence of US Secretary of the Treasury, Janet Yellen, took place in Washington on Thursday 13 October 2022, focusing on the macroeconomic situation and the impact of the energy crisis on both sides of the Atlantic. Ms Yellen stressed the importance of pursuing targeted policies to counter inflation, while maintaining strong financial support for Ukraine. In her speech, Minister Backes insisted on the importance of transatlantic cooperation, also to ensure that the financial support that Ukraine needs has maximum impact and that the resources mobilised are channelled to where they are most needed. She also reaffirmed her support for the initiative of the OECD and the G20 to put in place a two-pillar solution to address the challenges relating to the establishment of minimum taxation for companies at the global level, underlining Luxembourg's determination in favour of rapid implementation.

During the plenary meeting of the International Monetary and Financial Committee (IMFC), in the presence of the Managing Director of the IMF, Kristalina Georgieva, the President of the European Central Bank (ECB), Christine Lagarde, and the Secretary-General of the United Nations (UN), António Guterres, the discussions focused on the war in Ukraine and its humanitarian and economic repercussions. Energy insecurities, as well as global recovery strategies and the role of the IMF were discussed in detail.

At the World Bank, Minister Backes met Pablo Saavedra, Vice President for the Equitable Growth, Finance and Institutions (EFI) Global Practice, and subsequently signed a new Luxembourg support agreement for the "Global Tax Program". The objective of this programme is to support advisory services and technical assistance aimed at strengthening tax institutions in developing countries.

Luxembourg's Finance Minister also met with the Managing Director of the IFC, Makhtar Diop, to discuss joint projects between the IFC and Luxembourg and to sign a new four-year partnership agreement.

On the sidelines of the Annual Meetings, Minister Backes met with Ratna Sahay, Senior Advisor on Gender at the IMF. The former welcomed the institution's new gender equality strategy, emphasising that reducing inequalities between women and men is an economic imperative. Minister Backes and Ms Sahay also discussed the role of the financial sector in this context, which has a dual role to play in promoting diversity within institutions and helping to channel investments to achieve UN Sustainable Development Goal 5 (i.e. "achieve gender equality and empower all women and girls").

During a meeting with Paul Hilbers, Executive Director at the IMF, Minister Backes discussed the consequences of the energy crisis for Luxembourg, as well as the measures taken by the Grand Duchy to defuse the effects of soaring energy prices and support the most affected households.

These same concerns were on the agenda of a meeting with the Director of the IMF's European Department, Alfred Kammer, who recalled the need to conduct targeted and time-limited policies to combat inflationary pressure in Europe, while not jeopardising the medium-term sustainability of public finances. In this context, Luxembourg's Finance Minister took stock of the economic and budgetary situation in the Grand Duchy and reiterated Luxembourg's commitment to maintaining a level of public debt below 30% of GDP in order to preserve necessary leeway at all times.

Similarly, Minister Backes had a bilateral meeting with Kenji Okamura, Deputy Managing Director of the IMF, during which they  discussed the economic situation in Europe and its implications for Luxembourg. The former took the opportunity to announce Luxembourg's intention to contribute 20% of its 2020 general allocation of special drawing rights (SDRs) to the IMF's new flagship instrument, the "Recovery and Resilience Trust". This initiative is part of official development assistance. In doing so, Luxembourg becomes the largest contributor per capita to this IMF fund, the objective of which is to provide targeted aid to low- and middle-income countries and to strengthen resilience to external shocks whilst ensuring sustainable growth.

Luxembourg's Minister of Finance also met her Indonesian counterpart, Sri Mulyani Indrawati. Indonesia currently chairs the G20 and its Finance Minister co-chairs the Coalition of Finance Ministers for Climate Action, of which Luxembourg is a founding member. The two ministers discussed the current geopolitical and macroeconomic situation, the priorities of the G20 as well as the potential for strengthening bilateral relations between Luxembourg and Indonesia in the financial sector, more particularly in the field of green finance.

Finally, Minister Backes was part of a high-level IMF panel, moderated by Ratna Sahay, on the role of women in the financial sector, centred around the theme: “The World of Finance: Where are the Women?". Participants discussed ways to accelerate gender diversity in finance, reasons for existing gender gaps in companies and the incentives to put in place to encourage the presence of more women in decision-making roles. Minister Backes welcomed the IMF's recent decision to make gender diversity an integral part of its activities, stating: "The economic case for gender equality is undeniable: to achieve a sustainable economic recovery, we cannot afford to ignore half the world's population".

The Luxembourg delegation also took part in a round table organised by the US Department of the Treasury, under the theme "Degrading Russia's Military-Industrial Complex". Luxembourg reiterated its unfailing support for Ukraine and underlined the scale of the assets blocked within the framework of the implementation of the financial sanctions against Russia.

Minister Backes commented: "The challenges facing the world today are enormous: we must collectively face a triple crisis - an energy crisis, a cost of living crisis as well as a food crisis - without losing sight of the existential threat posed by climate change. This polycrisis is a powerful reminder of the need to find multilateral solutions to global problems".