New report analysing initial experience with IMF’s Resilience and Sustainability Trust shows evidence of concern: austerity, privatisation, and fossil fuel expansion

11 April, 2024 – Amsterdam/Dakar/Nairobi

• The report analyses the policy conditionalities included in the first 17 arrangements and does a deep dive in those in Kenya and Senegal
• Kenya’s arrangement under the RST aims at increasing space for climate action, however the government is paying 55% of its revenues on debt servicing and is expected to reduce its fiscal spending by 5.7% of GDP by 2025
• In the case of Senegal, one of the objectives of the arrangement under the RST is mitigation. However, the concurrent IMF program promotes fossil fuel expansion for export in wetlands (Sangomar field) and areas that are home to some of the largest fishing communities in West Africa (Greater Tortue Ahmeyim field) 
• The report concludes that through the RST the IMF is extending to climate policy the its approach to structural adjustment, and calls for a wholesome review of the instrument and the institution’s Climate Change Strategy

According to the report GREENING IMF LENDING: Elusive prospects, mixed evidence, published by LSD Sénégal and Recourse, despite IMF claims to increase climate ambition, an initial assessment of the IMF’s Resilience and Sustainability Trust (RST) shows little room for optimism. 

The 2021 issuance of Special Drawing Rights (SDRs) was a positive development and it was well received by Global south countries and civil society. However, the initial concerns about unused SDR rechanneling proposals were proven right. The IMF is using the RST as an avenue to push for austerity and privatisation. Overfocus on creating incentives for the private sector and increasing electricity and gas tariffs deters countries away from climate justice. 

This echoes the IMF’s approach to climate policy, according to which many developing countries “would be unable to afford a large redistribution of carbon revenues or meet their public investment needs” and therefore must rely on fiscal consolidation and the private sector to finance green development strategies. 

This is the case of Kenya and Senegal, both facing the consequences of the debt crisis taking hold of various lower income countries. Both countries are being pushed to harsh fiscal consolidation trajectories of 5.7% and 3.7% of GDP, forcing governments to decide between cuts to politically-sensitive areas of public spending (e.g., education and health) versus policies that only have a pay-off in the medium- to long-run.

The case of Senegal shows a clear contradiction between the arrangement under the RST and the concurrent program under the concessional Extended Credit Facility. Despite one of the objectives of the former being mitigation, the latter puts fossil fuel expansion at the center of the macroeconomic strategy to regain debt sustainability. Extraction will take place in the Sangomar field in the Salum Delta, a wetland protected by UNESCO, and in the Greater Tortue Ahmeyim field that is the home to one of the largest fishing communities in West Africa. 

Recommendations of the report include:

• Review of the IMF’s Climate Change Strategy to come up with a more coherent approach to climate policy, including an expert panel.
• The IMF needs a framework to ensure conditionality and surveillance recommendations are aligned with 1.5C pathways, ensuring the necessary fiscal space. The RST should not work in isolation and ignore the impact of the IMF’s traditional operations.
• The IMF Board must consider emergency measures given the debt crisis, including debt cancellation to ease the fiscal burden on countries’ budgets for them to be able to respond to the climate crisis.

“The lack of transparency and access to information regarding IMF policies and agreements reached with the government of Senegal poses a major challenge. This opacity hinders citizens’ ability to fully understand the economic decisions that directly affect their daily lives. For example, the adjustment of energy price subsidies by the government, encouraged by the IMF, has exacerbated the rise in electricity prices, thus impacting the lives of many Senegalese. To ensure a more just and equitable economic governance, it is imperative that decision-making processes be transparent and inclusive.” said Ndeye Fatou Sy, program officer at LSD Senegal

“The IMF plays a crucial role in the economic stabilization and development of Senegal, but the recommended policies often do not take into account local realities and the diversity of the population’s needs. This generic approach can lead to austerity measures that disproportionately affect the most vulnerable segments of Senegalese society. It is therefore necessary to adapt economic policies to national specificities and to ensure increased citizen participation in the decision-making process in order to promote more inclusive and sustainable economic development.” said Babacar Diouf, program officer at LSD Senegal. 

 ‘The IMF must properly  mainstream climate response if it will get involved in climate policy design. The current financing arrangement leaves little room for investments in climate action given the huge debt burden and harsh fiscal consolidation that developing countries especially find themselves in. The IMF needs to review its climate change strategy to address climate justice urgently’, says Grace Ronoh, Africa Finance Campaign Manager. 

Contact details

Federico Sibaja +32491199367 federico@re-course.org