Climate Change and IMF Surveillance: The Need for Ambition

The International Monetary Fund (IMF) needs to rapidly, but carefully, devise a climate change strategy that helps countries meet their collective climate change goals in a manner that enhances stability, equity, growth, and sustainable development. A top priority for IMF reform will be to align the IMF’s core surveillance functions with climate ambition. To this end, the IMF recently pledged to incorporate climate change in its ongoing reviews of its Article IV and Financial Sector Assessment Programs (FSAP).

A new policy brief from Kevin P. Gallagher, Luma Ramos, Corinne Stephenson-Johnson and Irene Monasterolo outlines the macro-critical aspects of climate change that will need to be incorporated into IMF surveillance activity and examines the extent to which climate risks have been a part of IMF surveillance in recent years. Their research shows that the IMF has paid minimal and uneven attention to climate risks in Article IV reports, and even less so in its FSAPs—though in each case the IMF has experimented with analyses that can be built upon.

The reviews of Article IV surveillance and FSAPs are currently underway and are a critical opportunity to bake climate change considerations into the IMF’s policies for the next 7-10 years. Once the policies are updated, they will be locked in for that amount of time. Therefore, the authors argue it is imperative that the IMF:

  • Recognize that both physical and transition risks within and across countries are macro-critical threats to financial and fiscal systems;
  • Ensure that physical and transitions risks analysis within and across countries is compulsory, systematic, and universal for all Article IV and FSAPs moving forward; and,
  • Work with staff, member states, stakeholders, the Network for Greening the Financial System, and experts to build on its early experience and align IMF surveillance policy with ambitious climate change goals.
Read the Policy Brief