- 14.10.2024
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Press release. 14 October 2024, Amsterdam. The IMF is using climate change to justify austerity measures in many of its current loan programs, a new report from international organisation Recourse, published with Alternative Law Collective, ACJCE and MENA Fem revealed today.(1)
IMF Managing Director Kristalina Georgieva has frequently proclaimed the importance of tackling climate change for economic and financial stability, and the Fund has significantly ramped up its resources and research on the issue in recent years. Yet new analysis of the loan conditions for the 51 countries currently under an IMF program reveals that the Fund is promoting the same public budget cuts under the cover of climate arguments, essentially greenwashing austerity.
Federico Sibaja, IMF Campaign Manager at Recourse, said:
“The IMF could play an important role in setting the macro conditions for achieving the Paris Agreement and pushing for major multilateral public resource mobilisation to open up critical fiscal space for climate action. Instead, it seems that the Fund’s ongoing loan programmes are using climate language to dress up their business-as-usual conditionalities, so we get the same austerity and privatisation agenda as before – only this time, greenwashed.”
Of the 51 current IMF programs, 40 include budget cuts of 3.3% GDP on average. Low-income countries are hit hardest, with average cuts of 4.1% GDP. In the middle of what observers have called “the worst debt crisis ever” for the Global South, 14 countries forced into austerity are classified as being ‘in distress’ or ‘at high risk of distress’, indicating that much of the rationale for budget cuts is to repay debt.
Zain Moulvi, Research Director at Alternative Law Collective explained:
“Pakistan showcases how the IMF’s greenwashed policies can exacerbate climate disasters in debt distressed nations. Even as the Fund was refashioning itself as a global climate leader, it forced a flood-ravaged Pakistan into a punishing year of fiscal austerity, refusing to release due tranches under its loan program, resulting in a massive outflow of funds and derailing the nation’s fundraising attempts. Pakistan was pushed to the brink of default and forced to slash development spending to service debt. The subsequent short term financial assistance program was based on a dubious debt sustainability analysis and a traditionally toxic mix of privatisation, external debt, and domestic austerity, foreclosing all hopes of meaningful climate action.”
The research also shows that the IMF continues to do little to promote a shift away from fossil fuel extraction, in part because of the need for foreign exchange from oil and gas exports to repay debt. In spite of Georgieva’s statement at COP28 to “direct public money where it can make a real difference” on decarbonisation, program documents examined by researchers lacked any meaningful discussion of industrial policy for a green transition. Neither the transition risks of sustained fossil fuel production, nor the prospect of debt cancellation to ease the pressure, were examined in the programs.
In 11 fossil-fuel-producer countries, the IMF endorsed continued extraction in its analysis to bolster fiscal and debt positions as well as foreign reserves through exports. Only in two of them did the Fund promote renewable energy as an alternative. In just over half of the 30 non-fossil-fuel-producing countries, renewables were promoted, but mostly through enhancing the role of markets and the private sector, rather than redirecting freed up resources into renewables infrastructure which would improve energy access for local people.
The IMF’s most frequent policy recommendation (in 36 countries) was eliminating consumer subsidies to electricity, gas or fuel. Yet, in many Global South countries, energy subsidies are a lifeline for communities and their removal has frequently resulted in backlash and social unrest. Making the public pay the price for emissions reduction has a regressive effect which threatens to undermine public support for climate action.
Only four IMF programs analysed the inequality impacts of their proposed reforms, and hardly any grappled with the implementation challenges of replacing universal energy subsidies with targeted social transfers – something that can take much longer to set up. The IMF also champions often controversial carbon pricing for climate action at the expense of other, more politically feasible and state-led policies.
Amena Sharaf, Climate and Economic Justice Officer at MENA Fem said:
“The IMF’s approach in Egypt exemplifies how its greenwashed policies can entrench economic hardship while sidelining meaningful climate action. By prioritising fiscal austerity and debt repayment, Egypt has been compelled to cut essential public spending, including on development. Despite the country’s vulnerability to climate change, the IMF’s focus on privatisation and subsidy cuts, particularly in energy, exacerbates inequality and slows the shift towards renewable energy. The lack of attention to the social and inequality impacts of these reforms risks undermining both economic stability and climate resilience. Once again the IMF is acting against its principles and putting our economies at risk.”
Even loans under the much-touted Resilience and Sustainability Facility, the IMF’s new lending program explicitly meant to buttress countries’ longer-term climate policy, seemed to differ little from traditional programs in relation to public budget cuts, energy subsidy elimination, and support for fossil fuel extraction for fiscal and debt sustainability reasons.
Federico Sibaja concluded:
“When the rubber hits the road of actual policy demands, an IMF aligned with the Paris Agreement – supporting renewable energy, green industrial policy, financial regulation and debt cancellation – remains a distant illusion for much of the Global South.”
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Download here the report, “Off track: The long road to mainstreaming climate action into IMF lending”, dataset and codebook.
For more information, quotes and contact with the authors, please get in touch with: Federico Sibaja, IMF Campaign Manager at Recourse, federico[at]re-course.org, +32491199367
(1) Alternative Law Collective is a member of the Alliance for Climate Justice and Clean Energy (ACJCE), a civil society network for a just energy transition in Pakistan. MENA Fem Movement For Economic, Development, And Ecological Justice is a feminist network for economic and ecological justice in the Middle East and North Africa.