New report shows slow progress in the IMF Climate Change Strategy surveillance activities

New report shows slow progress in the IMF Climate Change Strategy’s surveillance activities

• Analysis of 2023 IMF surveillance reports for Colombia and Indonesia finds evidence for concern. 
• The IMF fails to properly assess the need for fiscal space for green and just transition in two of the largest fossil fuel exporter economies.
• Environmentally damaging austerity measures are prioritised even when key climate risks are recognized by the IMF. 
• Green industrial policies, even though a key element of the green transition, are not given meaningful consideration in the IMF’s analyses. 

12 October, 2023 – Marrakesh

The report titled Blind Spots – The Green transition and the IMF’s Economic Surveillance published by Grupo para el Financiamiento Climático en Latinoamérica y el Caribe (GFLAC), TrendAsia, Senik Centre Asia and Recourse and written by Alexandros Kentikelenis and Thomas Stubbs tackles the IMF’s engagement with climate risks in its surveillance activities. The analytical focus is on Article IV consultations and Financial Sector Assessment Programs of Colombia and Indonesia in 2023. These countries were selected given the importance of fossil fuels and extractive industries for their economic development models.

The IMF’s economic surveillance offers a key instrument for countries to evaluate preparedness for climate shocks and for anticipating and pre-empting the adverse economic implications of a warming planet and the associated mitigation efforts. The report finds that, despite some progress refining analytic and modelling tools, the IMF fails to fully assess the interaction between macroeconomic and climate policy advice. 

In the case of Colombia, the IMF should assess alternative options to support the country’s export diversification plan, properly analyse the suitability of private finance to support a green and just transition and study the trade offs between fiscal consolidation and climate action. 

In the case of Indonesia, the IMF’s recognition of the limited climate budget allocation is promising, yet it fails to recognize how its own cautious fiscal stance may exacerbate the issue. Policy advice ignores the existence of producer fossil fuel subsidies, and should better assess social and environmental trade offs from nickel industry reliance. 

To address these shortcomings, Recourse calls for urgent changes at the IMF in five directions: 

• pursuing more systematic coverage of climate issues in the development of policy recommendations; 
• appropriately sequencing the IMF’s engagement, so that fiscal policies are not designed before the organisation has ascertained the level of financing needs for climate change adaptation and mitigation;
• expanding the policy horizons of economic recommendations, so that its proposals are simultaneously economically sound, aligned with climate change adaptation and mitigation goals, and socially just;
• reviewing its toolkit’s appropriateness to tackle long-term challenges; 
• ensuring wider engagement with CSOs working on ‘macro-critical’ issues.

“The IMF fails to properly address social and environmental impacts of the country’s export strategy, including those of nickel mining. The IMF should support a just energy transition away from fossil fuels and ensure fiscal scaling up investments in sustainable renewables, while discouraging coal”, stated Yuyun Indradi, Executive Director at TrendAsia

Sandra Guzmán, General Coordinator at GFLAC, said “The transformation of the IMF is an imperative in the context of climate change. Decreasing carbon intensive investments and increasing climate and sustainable finance in developing countries without intensifying debt stress will be critical. To fail in this task, will lead to a failure of the financial system as a whole”.

“IMF surveillance must address fossil fuel subsidies to producers and end all support for coal. In addition, surveillance should also prioritise a clean and equitable energy transition by considering the physical risks of climate change, socioeconomic recovery and energy transition risks. This approach will help Indonesia transition away from fossil fuel dependency in its economic development models and achieve macroeconomic stability” stated Andri Prasetiyo, researcher at Senik Centre Asia. 

Contact details

Federico Sibaja +32491199367 federico@re-course.org 

Sandra Guzmán +447710691730 Sguzman@gflac.org 

Andri Prasetiyo +6287883453112 andriprast.contact@gmail.com