The impact of recent International Monetary Fund (IMF) lending programmes on the phase-out of fossil fuels and the likelihood of achieving green and just transitions in Bangladesh and Uganda has opened up several opportunities.
These opportunities however are attached with potential risks they pose to a country's economic performance and the success of IMF programmes, as they are not adequately considered in the design of conditionality.
This has been highlighted in the new report published on Wednesday by Re-course and its partner organisations, read a press release.
The partner organisations are – Change Initiative, Environmental Governance Institute, Centre for Citizens Conserving Environment and Management (CECIC), the Southern and Eastern Africa Trade Information and Negotiations Institute (SEATINI) and the Initiative for Social and Economic Rights (ISER).
In 2021, the IMF published its climate strategy and established its first lending programme targeting climate change, known as the Resilience and Sustainability Trust. This trust currently serves as the primary mechanism for rechanneling Special Drawing Rights.
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.
Prof Thomas Stubbs, author of the study from Royal Holloway (University of London), and Alexander Kentikelenis from Bocconi University report that while climate issues are now being discussed, 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 programme.
These priorities are supported by conditions that call for green fiscal and public investment management. However, the IMF fails to assess the balance of payment risks associated with the reliance on liquefied natural gas (LNG) and does not recommend the scaling up of public investment in sustainable renewables as fuel subsidies are phased out.
M 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.
Federico Sibaja, IMF Campaign Manager at Recourse, emphasised the need for the IMF to systematically include climate considerations in its loan programmes.
He said, “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.”
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.
