The IMF and Climate Change: Focus on What Matters for Greater Impact

The IMF has an important role to play in climate-related macro-financial issues, especially at a time of great uncertainty for global climate action. As the only multilateral institution responsible for promoting global macroeconomic and financial stability, the IMF needs a better approach to help countries, particularly emerging market and developing countries (EMDCs), get their economic frameworks right—as a necessary foundation to mobilize public and private investments including for climate action. This is the key area where the IMF can be bold to help advance climate action in the current environment. In parallel, the IMF should streamline the remainder of its climate work to what is macro-critical and aligned with its mandate. As a part of the global constellation of actors working to solve climate change, we need the IMF to do its job well—not all jobs. This paper recommends that the IMF (1) dramatically strengthen lending programs by enabling countries to more durably implement ambitious reforms, escape debt overhang that inhibits growth, and ultimately invest to make their economies cleaner and more resilient; (2) rethink the Resilience and Sustainability Trust (RST), which has thus far had incremental impact, to support a narrower set of ambitious macro-critical reforms aimed at catalyzing investment and supporting stronger programs; (3) buy political space and leverage IMF expertise by strictly limiting coverage of climate issues in surveillance to where it is macro-critical and aligned with the IMF’s mandate; and (4) further enhance partnership with the World Bank, being clear where more collaboration is needed and where the institutions can divide and conquer.