How the IMF Can Support African Countries Deal with Climate Change

Evidence suggests that Africa is the most vulnerable continent to climate change. Although countries across the continent contribute relatively little to global emissions, they remain at significant risk from the devastating economic effects of climate change. In a recent CGD paper, we explore how the IMF can best support African countries’ efforts to cope with the macroeconomic policy and structural challenges associated with climate change, and we make recommendations for how such support could be channeled through IMF surveillance, capacity development, and financing.

IMF surveillance

Improving the effectiveness and traction of IMF surveillance could enable timely responses to climate-related crises. Overseeing the international monetary system and the policies of its member countries—an activity known as “surveillance”—is a key function the IMF performs to promote global economic and financial stability. IMF staff should ensure that their policy advice in the context of global, regional, and country surveillance is tailored to the specific circumstances and institutional capacity of African countries as well as to their economic vulnerabilities to climate change.

The IMF could also facilitate adaptation and mitigation efforts in African countries by engaging in intensive outreach activities about the economic impact of climate change, notably on the basis of multilateral surveillance. This could provide useful support for the authorities’ efforts to rally public acceptance of the need for difficult sacrifices in the fight against climate change, which may prove critical for overcoming related macroeconomic and structural challenges.

While comprehensive reviews of climate-related challenges and strategies could appropriately take place only every few years in the context of bilateral surveillance, IMF country teams and experts should be empowered and prepared to provide advice on specific issues on a flexible basis in the interim, without being tied to formal periodic work schedules.

Capacity development

Optimizing the impact of IMF capacity development could be among the most effective IMF contributions to the fight against climate change in Africa. But to fulfill this potential, a key prerequisite is to develop comprehensive IMF capacity development strategies in close collaboration with the authorities in climate-vulnerable countries. This will help to ensure that capacity development assistance is properly prioritized and aligned with areas of critical need and potential impact, with capacity development on climate issues identified and integrated into these strategies.

For effective delivery, hands-on, in-country technical assistance should be provided in cases where implementation capacity is limited, possibly through resident advisors.

Adequate financing for capacity development activities on climate issues should be identified and actively sought. In addition to reprioritizing and augmenting internal budgets and existing donor funds, a new dedicated climate capacity development fund for vulnerable and low-income countries could be established, notably with potential support from nonofficial agencies, private companies, and philanthropies to help support its capacity development activities.

IMF financing

Estimates of adaptation needs vary considerably due to differences in assumptions about future baseline trends in public goods that increase resilience to climate change as well as differences in the scope of need. But there is a broad consensus that adaptation and mitigation financing needs will be significant for African countries. For sub-Saharan Africa, IMF research indicates that adaptation needs will amount to $30-50 billion (2-3 percent of regional GDP) a year during 2021-2030.

To mobilize the necessary resources, Africa will thus need financing from multilateral and bilateral partners, including the IMF. In this regard, the Resilience and Sustainability Trust (RST) is a welcome addition to the IMF toolkit, representing a potentially significant source of concessional financing for climate-vulnerable countries on the continent.

Nevertheless, several technical modifications to the RST could help to limit the potential cost for low-income borrowers to access its resources.  In this regard, we support calls to eliminate the requirement that the facility be charged for associated administrative costs, to set a cap on interest rates for low-income borrowers, and to establish a subsidy account to finance interest charged to low-income borrowers. To increase attractiveness in terms of available financing for African countries with relatively small IMF quotas, the IMF Board could also raise limits on access under the facility, in addition to seeking additional contributions from wealthy members more generally.

Furthermore, how programs under the new facility will be linked to concurrent upper-credit tranche programs, and how conditionality under the programs themselves are established, will be key to the successful operationalization of the RST. It will be important that the bar for countries to access precautionary and non-borrowing programs be set in a way that balances the authorities’ performance and intentions with the need for adequate safeguards for the IMF.  As for conditionality under RST programs, excessive and controversial conditionality should be avoided, with scope for the IMF-supported program to build on national climate strategies, subject to an assessment by the World Bank (as currently planned).

Conclusion

Dealing with the myriad policy challenges associated with climate change has become an increasingly urgent issue for highly vulnerable African countries. We hope the IMF can effectively play its part in supporting global efforts to assist national governments cope with this challenge, in line with its mandate while ensuring strong ownership by governments and societies at large. Although this contribution could prove relatively limited in view of the considerable needs for climate action, Africa and the world cannot afford to forgo any penny that can make a difference in fighting this existential threat to human survival and ecological balance.