Webinar Summary: Securing a Development-Centered Approach to Climate Policy at the International Monetary Fund
On Tuesday, October 5, the Boston University Global Development Policy (GDP) Center co-hosted a webinar discussion with seven institutions from around the world on establishing a development-centered climate policy at the International Monetary Fund (IMF).
The discussion was co-sponsored by the Intergovernmental Group of 24 (G24), the Vulnerable Group of Twenty (V20) Ministers of Finance, the African Economic Research Consortium (AERC), the National School of Development at Peking University, the Centre for Social and Economic Progress, the Financial Futures Center and the United Nations Economic Commission for Latin America and the Caribbean (ECLAC).
The webinar was moderated by Sara Jane Ahmed of the V20 and featured Amar Bhattacharya, Senior Fellow at the Brookings Institution; Daniel Titelman, Director of the Economic Development Division at ECLAC; Ma Jun, Director of the Macro and Green Finance Lab at the National School of Development at Peking University; and Abebe Shimeles, Director of Research at AERC. Marilou Uy, Director of the Secretariat of the G24 on International Monetary Affairs and Development, provided concluding remarks.
Sara Jane Ahmed introduced the discussion by announcing the launch of the Task Force on Climate, Development and the International Monetary Fund, a new research collaboration between eight institutions from around the world. Over the next 18 months, the Task Force will engage in rigorous, empirical research to inform policies that align international financial stability and growth with global climate goals.
Ahmed noted that this Task Force is launched in the context of accelerating climate change and worsening impacts around the world. Climate finance continues to fall short of what countries need and current pledges continue to lack follow-through. As the only multilateral rules-based institution charged with promoting the stability of the international financial and monetary system to enable longer-run growth, the IMF can enable a fit-for-purpose response to help the transition to a low carbon, climate resilient global economy.
She welcomed the IMF’s recent policy paper on climate change, but stressed the need for a broader scope with a focus on resilient economic development, given the severity of the climate crisis.
Next, Amar Bhattacharya introduced the Task Force’s inaugural strategy report, which outlines the vision for a development-centered approach to climate change at the IMF. He underscored the importance of the IMF addressing climate change, as it poses risks to both economic growth and stability, particularly among low-income countries. He identified three elements of such a strategy – multilateral surveillance and global leadership on the climate agenda; bilateral surveillance (including capacity building) and a climate-aligned finance toolkit – and outlined the five principles guiding the agenda moving forward.
Daniel Titelman then further emphasized the importance of a development-centered approach to climate policy. He noted that a focus on investment and mobilization of resources in developing countries and emerging markets is particularly important, given slower than expected economic growth, existing fiscal constraints and the tightening of financial markets. In the context of achieving net-zero carbon emissions by mid-century, he identified a “double challenge” for fossil fuel exporting countries, which lose export earnings but also need to ramp up investments for low carbon development. He also highlighted the importance of reflecting the varying needs and capabilities of countries in how the IMF addresses climate change.
Following Titelman, Ma Jun said the IMF was well-positioned to engage in analytical work to help identify and address the macro-economic implications of climate change. In particular, he stressed the need for greater understanding of the impact of climate policies and policy combinations, such as carbon pricing policies in conjunction with subsidies for low-carbon technologies, on macroeconomic indicators such as national income, inflation, income distribution and jobs.
He also called for attention to how policies adopted to address climate change may generate significant economic effects for other countries. These ‘cross-border spillover effects’ could disproportionately burden developing countries. He said careful analysis is necessary because policies, such as carbon border adjustment measures, have the potential to reshape and restructure international trade, thereby impacting balance of payment, growth, and fiscal stability in other countries.
Concluding the panelist remarks, Abebe Shimeles highlighted the need to improve collective understanding of the interactions between climate change shocks and macro-economic stability. Doing so, he said, would be particularly important for identifying financing needs. He also said that all regions in Africa have been affected by climate impacts. While African countries have contributed little to climate change, they will have to – and already have begun to – bear the brunt of climate impacts. Given such context, he said it is particularly important for a global partnership to be in place to support countries and to ensure a manageable transition to low-carbon development.
In the discussion portion of the webinar, Bhattacharya responded to a question about the suitability to use conditionalities by the IMF in a climate strategy. He stressed the importance of country specificity and the need to support countries that are prepared to take action, without subjecting them to standard conditionalities.
On how to increase national and stakeholder ownership, Titelman said the work of the IMF will need to reflect national conditions and needs. He added that national ownership can also be strengthened by improving the fiscal space available to countries. In particular, he said national efforts to reduce tax avoidance could help generate some of the needed resources.
Separately, Ahmed highlighted the role the IMF’s proposed Resilience and Sustainability Trust (RST) could play in reducing the cost of capital by providing guarantees.
Bhattacharya elaborated that the RST could help tackle some of the different dimensions of climate change that emerging markets and developing countries face, such as a higher incidence climate shocks, the need to build climate resilience and the imperative to meet the adjustment costs necessary for a just transition. In this way, the RST can form an important part of the overall finance toolkit of the IMF.
Finally, in her closing remarks, Marilou Uy said the Task Force members would engage in analytical work to help inform ways and approaches for tailoring the IMF’s policy advice to different countries. She underscored the importance of supporting both development and climate goals, tailoring advice to diverse circumstances of countries and fostering policy coordination to mitigate the adverse impacts of spillovers arising from climate policies. Uy also said that the IMF could be a part of the climate finance solution, which will require revisiting the existing toolkit to ensure that longer-term financing instruments can be made available to support transformation.
Learn more by visiting the homepage of the Task Force on Climate, Development and the International Monetary Fund.