NEW: IMF condemned for "short-term thinking" as new research shows Fund failing to mainstream climate

Press Release 

Recourse 

For immediate release 

NEW: IMF condemned for “short-term thinking” as new research shows Fund failing to mainstream climate

Amsterdam, 21 June 2023 

• The IMF is promoting oil expansion and fiscal consolidation instead of prioritising green investment, according to new research published today.
• The report, by researchers from Royal Holloway and Bocconi University, shows how the IMF is paying insufficient attention to climate issues in the design of policy conditionalities attached to its loans in Bangladesh and Uganda.
• This report comes days before world leaders meet to discuss a new “Global Financing Pact with the South” in Paris, 22-23 June.
• Campaigners at Recourse are calling on the IMF to stop promoting fossil fuels and support countries to achieve a just, green transition.
• The full report can be read at: https://re-course.org/wp-content/uploads/2023/06/FOR-WEB_IMF-Lending-and-Green-Transition.pdf 

Today, Recourse and its partner organisations—Change Initiative, Environmental Governance Institute, Centre for Citizens Conserving Environment & Management (CECIC), the Southern and Eastern Africa Trade Information and Negotiations Institute (SEATINI) and the Initiative for Social and Economic Rights (ISER)— have published a new report highlighting the impact of recent International Monetary Fund (IMF) lending programs on the phase-out of fossil fuels and the likelihood of achieving green and just transitions in Bangladesh and Uganda. 

This report comes at a time when world leaders are discussing a new “Global Financing Pact with the South” in Paris. The IMF must align its entire policy framework with climate objectives, especially considering that the most vulnerable members of the IMF are also the most exposed to extreme climate events. Countries need to significantly increase public investment and align economic policies with broader climate and development goals. 

In 2021, the IMF published its climate strategy and in 2022 established its first lending program targeting climate change, known as the Resilience and Sustainability Trust. This trust currently serves as the primary mechanism for rechanneling Special Drawing Rights and will reach almost 50 countries. As the institution shapes its role in maintaining global financial stability, it is crucial for the IMF to actively integrate climate considerations into all its activities. 

The study’s authors, Professors Thomas Stubbs from Royal Holloway (University of London) and Alexander Kentikelenis from Bocconi University report that while climate issues are now being discussed in relation to the potential risks they pose to a country’s economic performance and the success of IMF programs, they are not adequately considered in the design of conditionality.

In the case of Bangladesh, the first Asian country to have an arrangement under the Resilience and Sustainability Facility (RSF), climate priorities are clearly outlined in the loan documentation and are integrated throughout the program. But these are done on the basis of the country’s NDC which is not aligned with a 1.5C trajectory, therefore supporting the expansion of fossil gas. The IMF fails to assess the balance of payment risks associated with the reliance on liquefied natural gas (LNG) and does not assess balance of payment benefits of scaling up of public investment in sustainable renewables as fuel subsidies are phased out.

Zakir Hossain Khan, lead researcher at the Change Initiative, said “The IMF’s RSF should be equally used for prioritised adaptation actions and renewable energy expansion to ease the fiscal burdens and sustainable energy sources at affordable tariffs”.

In the case of Uganda, the program pays little attention to climate issues. Recommendations for fiscal consolidation have resulted in reduced public investment in adaptation policies, and the IMF bases its entire analysis on the prospect of Uganda becoming an oil exporter, even relaxing fiscal deficit targets for capital expenditures in oil infrastructure.

Edwin Mumbere, Director from the Centre for Citizens Conserving Environment & Management expressed concern, stating, “The IMF is supporting the extraction of Ugandan oil, even though it is a long-term project that will not generate revenue for many years. This short-term focus could have negative consequences for the environment and the people of Uganda. However, investing in renewable energy could create more sustainable jobs for Uganda.”

“The IMF’s lending programs must align with climate objectives, going beyond mere acknowledgement to concrete actions. By integrating climate considerations throughout loan design and conditionality, prioritising renewable energy expansion, and promoting green fiscal policies, the IMF can contribute to the green and just transitions needed in Uganda, and beyond” commented Grace Namugambe, Policy Officer at SEATINI.

Federico Sibaja, IMF Campaign Manager at Recourse, emphasised the need for the IMF to systematically include climate considerations in its loan programs. He stated, “This means moving away from short-term thinking and properly recognizing that the next few years will be crucial for climate policy. Public investment in climate initiatives needs to be prioritised and front loaded for both mitigation and adaptation. The IMF’s support for fiscal consolidation, reliance on gas as a transition fuel, and investments in oil infrastructure are contrary to what Global South countries require for their green and just transitions.”

-ENDS 

For more information, contact: 

Federico Sibaja, IMF Campaign Manager at Recourse at federico@re-course.org or +32 491 19 93 67 

Thomas Stubbs, lead author of the report at thomas.stubbs@rhul.ac.uk or +44 7522 772306

M. Zakir Hossain Khan, Lead Researcher at Change Initiative, zhkhan@changei.org   

Edwin Mumbere, Director at CECIC emumbere@cecicug.org