IMF will need Bank’s help to fulfil climate ambition

The International Monetary Fund realises it needs to up its game on climate change and is hiring staff. But specialists say it can only fulfil this new area of its work properly if it restarts a stalled partnership with the World Bank.

“On climate we are trying to step up a lot,” said James Roaf, the new co-ordinator of climate change policies in the IMF fiscal affairs department. “It’s macro-critical in its effects,” meaning critical to macroeconomic performance.

The impacts are varied. Climate-related hurricanes devastated parts of the Caribbean in 2017. Countries need to invest in infrastructure to protect themselves from floods and droughts. Hydrocarbon producers face falling demand and prices. China has committed itself to net zero emissions in 2060, but needs to finance that. European countries have been asking the IMF to advise them on similar issues.

“Climate has been a huge blind spot of the IMF,” said Jon Sward, environment project manager at the Bretton Woods Project, an NGO observing the World Bank and IMF. “In many countries it has been promoting export-led growth which is quite carbon-intensive and sometimes leads to deforestation. We’ve been discussing with IMF shareholders about this and they agree the IMF needs to see climate as macro-critical.”

Beginning when Christine Lagarde was managing director, but particularly in the past year under Kristalina Georgieva, the Fund has been trying to rectify its severe shortage of climate experts.

Climate is not an issue where the IMF can just passively analyse the effects. It needs to help countries mitigate climate change and prepare for it.

“The idea is to mainstream climate within our country teams,” said Roaf. “We want them to be able to deepen their engagement with central banks and country authorities, to advise and discuss climate issues in all our member countries.”

Every year the IMF produces a surveillance report on each member, which includes a Debt Sustainability Analysis (DSA). Climate issues can be factored in, but the framework is not specifically built to encourage that.

More fundamentally, the Fund lacks the necessary skills. Calculating a country’s climate needs requires detailed assessment of energy, agriculture, transport, weather and many other issues.

“The more the IMF gets into climate change, the more they will expose themselves, because they need credible access to sector knowledge,” said Carter Brandon, a senior fellow at the World Resources Institute who advises the IMF.

The Bank and Fund only work together on three areas: DSAs, Financial Sector Assessment Programmes — another part of surveillance reports — and the Highly Indebted Poor Country programme. On these tasks, they pool complementary skills: the World Bank’s sectoral and longer term view, the IMF’s knowledge of short term liquidity and debt pressures.

A fourth collaboration was launched as a pilot in 2017: Climate Change Policy Assessments. Joint teams did deep studies of six island countries, starting with the Seychelles. The last, on Tonga, was finished this year.

The Fund is considering rolling these out to all countries. Brandon believes that would be a valuable input to the other parts of the Fund’s work such as DSAs and FSAPs.

But the Fund and Bank have not managed to agree a methodology or a mechanism for working together. The need is acknowledged on both sides. Roaf said: “We need to swap knowledge with the Bank — in particular they have much more expertise on the sectoral impacts of climate change.”