IMF Putting Climate Issues at the Heart of Its Work

BRIDGETOWN, Barbados – The International Monetary Fund (IMF) says it is putting climate issues at the forefront of its work acknowledging also that development and private partners have a key role in providing financial and technical support and investments.

IMF Managing Director, Kristalina Georgieva, (IMF Photo/Kim Haughton).“From advising on economic policies to capacity building support, to helping small states with fiscal strategies that build climate resilience, the Fund has a role to play. Macroeconomic policies are an important part of the response to climate change,” IMF managing director Kristalina Georgieva, told the Caribbean Media Corporation (CMC) in an exclusive interview.

Georgieva, who ends a four- day visit to Barbados on Friday – the first ever by an IMF managing director to the Caribbean – was giving her perspective on discreet dispensation for small island developing states (SIDS), especially those in the Caribbean, vulnerable to natural disasters, in dealing with the impact of climate change.

She was asked to place the situation in context given that the overall 26th UN Climate Change Conference (COP26) package did not adequately address the pressing and urgent needs of SIDS in confronting the accelerating impacts of climate change and in meeting the requirements for climate resilience and adaptation?

“Let me start by stressing that the Fund is putting climate issues at the heart of our work,” she said, noting that the financing needs of climate-vulnerable countries are huge and that building global climate resilience will cost trillions of dollars over the next decade.

“Investments in clean energy are also needed. And there is only so much debt countries can afford.

So, development and private partners have a key role in providing financial and technical support and investments.

“At the same time, countries themselves can focus on tailored, robust policies built on good governance, because more effective spending, married with accountability and transparency, will mobilize more funds externally and domestically,” Georgieva told CMC.

“At the Fund, we are working together with Caribbean countries to help internalize resilience, building it into sustainable macroeconomic frameworks and helping secure financial support from the international community.

“As we think about operationalizing the first Resilience and Sustainability Facility programs funded by the RST (Resilience and Sustainability Trust), our plan is to work closely with our development partners: the World Bank and other multilateral development banks.

“They play a role in key role reducing risks and lowering barriers for small developing countries to unlock finance for climate change, including by leveraging their climate expertise and providing policy advice. Support from other development partners will also be important for countries with limited fiscal space. It is important to start putting strong frameworks in place to make the best use of financing,” she added.

Georgieva told CMC it is always good to look at risks holistically and to plan to manage them over the long term as she discussed whether ot not to support the operationalization of an integrated country risk management framework, robust enough to strengthen social safety nets and with the capacity to adapt to shocks and that would allow the Caribbean and other SIDS to build back better following recent shocks, including COVID-19.

She said examining risks “holistically” would also require building resilience and the ability to bounce back from shocks, no matter what the cause “climate or natural disasters, pandemics, war, or something else. In that sense, resilience is a multi-faceted concept.

“Resilience comes from the people first and foremost—when they are healthy, well-educated, and not financially stressed, they can adapt to new challenges. So, enhancing social safety nets and health care systems is a wise investment in people and, in turn, in the economy.”

She told CMC that financial resilience is particularly important and for governments, this includes budgets that look out over several years and make room for both unexpected costs, and investments in areas like climate adaptation and education.

“Foreign exchange reserves are needed to ensure the flow of needed imports. And for businesses and families, it means insurance for natural disaster and other unexpected events, which can be provided by the private sector, or government when necessary.

“Risk management frameworks can help countries adapt policies to changing economic conditions. The Caribbean Development Bank, among others, have done important work in this area.”

During the interview, Georgieva said she agrees with the call being made by SIDS for the IMF and other international financial institutions (IFI) as well as bilateral and multilateral development partners to step away from the “blinders of gross domestic product (GDP)  per capita” since they have argued  that it cannot be a measure of development, let alone sustainable development.

SIDS have been calling for new policy options to help developing countries, indicating the current menu of IFI programs does not address the inherent vulnerabilities and fragilities of such countries.

“Yes, I agree. There is definitely more the international community, and the Fund, can do for the people of developing countries, including small island states,” she said.

The IMF managing director said that over the past decade especially, “we have increasingly focused on identifying the unique vulnerabilities of SIDS.

“These include low levels of economic diversification and the lack of economies of scale. The latter is important for both business, and the capacity of governments and industries like health care, to develop specialized expertise and provide the full range of services you see in larger economies.

“The IMF considers these sorts of vulnerabilities, and size in our lending. For instance, we allow small and micro-states to access zero-interest financing, even if their per-capita income is relatively high. Thanks to this, 19 out of 34 small states are eligible that would otherwise be excluded, including four of our Caribbean member states.

“In addition, all small developing states are eligible to borrow from the new Resilience and Sustainability Trust. We did this because we recognize that most small developing states, even those with relatively high incomes, face longer-term risks related to climate change and lack steady access to affordable long-term market financing.”

She told CMC that the Fund also developed tailored economic advice for small developing states that focuses on growth, resilience, and competitiveness, while considering special debt and financial sector circumstances.

“And on small developing states receive more of the capacity development spending…compared to other countries. But we can always do more. There is a quote from author and activist Maya Angelou which I love, “Do the best you can until you know better. Then when you know better, do better.”

She said that income is only one part of the story of welfare and development.

“We are in constant dialogue with other partners and stakeholders which are developing other measures, what economists call “multi-dimensional vulnerability indices, including those specially focused on SIDS.

“These efforts suffer from problems like data gaps that can make their results and implications inconsistent. We can only know better and do better by our members when we have better measures, as your question implies. So, the Fund will continue contributing to this body of research. In fact, in recent years, the IMF’s annual Statistical Forum has focused on aspects related to how to measure economic well-being more holistically,” Georgieva told CMC.