Executive Summary
In recent years, the International Monetary Fund (IMF) has portrayed itself as a climate champion through its flagship research publications, staff policy papers, public-facing factsheets, and speeches. But what does its track-record reveal when it comes to its most consequential activity: lending to countries in crisis in exchange for policy reforms? This report examines the evidence from recent IMF loans to Bangladesh and Uganda, as well as additional IMF loans and reports. The report’s findings present a mixed picture. On the one hand, there have been promising developments. Most notably, the IMF has created the Resilience and Sustainability Facility, a new lending instrument that can help countries implement climate change adaptation and mitigation measures. Further, the organisation’s analytical work increasingly covers climate issues, including economic risks from climate change. However, these encouraging steps coexist with the continuing advocacy of policies that are not compatible with meeting the challenge of the green transition. The endorsement of fossil fuel investment as a solution to fiscal and external imbalances neglects environmental costs that have substantial downstream economic effects. Extensive fiscal consolidation measures—better known as austerity—threaten to starve public budgets from the resources needed to invest in green policies. The advocacy of public-private partnerships is also problematic, as even when they are touted as solutions to climate financing gaps, they can have adverse and unpredictable consequences on public budgets and undermine future green investments.
Overall, Bangladesh’s IMF programme stands out as a positive first step toward the pursuit of a green, just transition, though is far from perfect. Climate priorities are articulated in the loan documentation and integrated throughout the program, underpinned by conditions calling for green fiscal and public investment management. However, it is worth noting that those climate priorities are not aligned with the Paris Agreement, as Bangladesh has so far not committed to reaching net zero greenhouse gas emissions. Several recommendations appear at cross-purposes with these priorities. Support for PPPs to close the climate financing gap introduces new macroeconomic risks that could undermine future public investment in green infrastructure. Furthermore, hikes to petroleum products, while consistent with a green transition, may negatively impact the most vulnerable communities. The IMF also missed an opportunity to address Bangladesh’s power sector overcapacity issues head-on by more assertively endorsing renewable energy solutions, and failed to identify environmental and balance of payments risks linked to the country’s continuing reliance on liquified fossil gas.
Based on this analysis, Uganda stands out as a negative case for the meaningful pursuit of a green, just transition. In the context of the IMF program, investment in oil infrastructure was ringfenced and there were only limited attempts at considering climate issues, such as the incorporation of natural disaster shocks into the debt sustainability analysis. While increases in excise duties on fuel consumption could represent a potential boon for fostering a green transition, these were motivated by immediate fiscal risks rather than climate concerns. They are also a regressive tax that disproportionately hurt poorer households, and it is unlikely that lower-income households will be sufficiently protected. Furthermore, IMF-mandated reductions to the fiscal deficit undermine the ability of the government to invest in climate adaptation and mitigation strategies. The IMF programme also failed to account for the beneficial fiscal implications of greater investment in adaptation infrastructure. Most alarmingly, by failing to acknowledge the perverse climate implications of fossil fuel revenues, the IMF implicitly encourages further reliance upon fossil fuels as a means to balance the budget and current account.
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