Webinar Summary: The IMF, COVID-19 and Climate Change

Amid the worst global recession since World War II, the International Monetary Fund’s (IMF) 2021 Spring Meetings debated the importance of incorporating green policies into the economic recovery. In her opening speech, the Fund’s Managing Director Kristalina Georgieva noted that the IMF has a strategic role to play in mitigating climate change, in that the IMF’s tools, including lending, surveillance and capacity development, will be instrumental in financing a just transition to a low-carbon economy that will be beneficial for both economic growth and green jobs.

In this context, on April 7, the Boston University Global Development Policy (GDP) Center researchers Kevin P. Gallagher, Franco Maldonado and Luma Ramos, along with Prakash Loungani from the IMF’s Independent Evaluation Office and Barbara Fritz of Freie Universitat, Berlin participated in a webinar discussion on the IMF’s role in monitoring, advising and lending to countries as they grapple with COVID-19 and climate change.

Additionally, Fritz, Maldonado and Ramos presented three interactive data projects for tracking and monitoring the IMF’s work on COVID-19 and climate change:

The Global Financial Safety Net Tracker –produced with Freie Universitat, Berlin and the United Nations Conference on Trade and Development (UNCTAD), is an interactive data project that tracks the annual lending capacity of the IMF, central banks and regional financial arrangements (RFAs), and the total amount of financing to combat the COVID-19 crisis via loans from the IMF, RFAs and currency swaps.
The IMF COVID-19 Recovery Index – produced with UNCTAD, is an interactive data project that scores the extent to which the IMF’s COVID-19 response programs combat the virus, support the vulnerable and promote a green and inclusive recovery from COVID-19.
The IMF COVID-19 Surveillance Monitor – the newest interactive from the GDP Center and UNCTAD examines the extent to which the IMF incorporates support and guidance on health, support for the vulnerable and climate change in its COVID-era surveillance efforts.

Barbara Fritz, Professor at Freie Universität, Berlin for Latin American Economics, began by discussing inequalities in the Global Financial Safety Net (GFSN) under COVID-19. Based on estimations from the Global Financial Safety Net Tracker, Fritz explained that the GFSN has evolved, but is still underfunded and unequal in how countries are able to access its resources.

According to the GSFN Tracker, financing available from the GFSN has reached about $3.5 trillion, or 4 percent of global GDP. With approximately $1 trillion lending capacity, the IMF is a major lender, but not the only actor providing emergency liquidity to countries. Regional financial arrangements (RFA) and bilateral currency swaps have also provided significant liquidity to countries in need. While the level of support available is larger than a decade ago, it is still less than 1 percent of total global financial assets.

Fritz underscored a highly uneven and unequal distribution of GFSN availability. Many countries only have access to a relatively small portion of the funds available and some have few options altogether. She recommended increased cooperation between the IMF and RFAs and suggested reforms to the conditionalities attached to loans from the IMF.

Following Fritz, Franco Maldonado, a Pre-Doctoral Fellow at GDP Center, presented results from the latest data update to the IMF COVID-19 Recovery Index, an interactive data project tracking the extent to which the IMF’s COVID-19 era loans help countries finance health, support for the vulnerable people and green recovery policies. Since the beginning of the COVID-19 crisis in early 2020, the IMF has commenced 117 fiscal response programs, equal to nearly $105 billion. This funding, according to Maldonado, has so far mostly supported country policies oriented towards boosting health expenditures and supporting vulnerable populations, but support for green recovery policies has so far been lacking.

Maldonado also noted that the IMF’s conditional loan programs has seen a higher level of IMF engagement to these issues than its unconditional programs have received. In particular, the Fund has actively recommended support for the vulnerable policies (e.g., cash transfers and social safety nets) and has placed interest on fossil subsidies and environmental taxes in conditional programs.

Luma Ramos, GDP Center Researcher, next presented The IMF COVID-19 Surveillance Monitor, which examines the extent to which the IMF incorporates health, support for the vulnerable and climate change in its COVID-era surveillance efforts. As she underlined, prior to the COVID-19 crisis, the IMF in 2019 gave relatively little attention to these three topics and in particular, did not incorporate climate change elements in their analyses. This changed in 2020, when the IMF pivoted amid the COVID-19 pandemic to the focus on health and support for the vulnerable in its Article IV consultations, which are the country surveillance document written by IMF staff. However, attention to climate change has remained secondary at best.

Ramos also identified a clear asymmetrical guidance in key surveillance themes, where lower-income nations most in need of the IMF’s advice are receiving fewer recommendations and assessments on these key themes.

Next, Kevin P. Gallagher presented the main results of a new working paper assessing the IMF’s attention to climate change in its surveillance activity. As he pointed out, climate risks are macro-critical to financial stability and should be at the center of the IMF’s surveillance activity. Further information from that analysis is also available in a policy brief, also referenced by Gallagher.

Gallagher also underscored that the IMF must incorporate climate risk evenly across Article IV and Financial Sector Assessment Programs (FSAP), two of the Fund’s surveillance assessments. A starting point should be in the Comprehensive Surveillance (CSR) and FSAP reviews to ensure the IMF’s staff has the guidance and training to mainstream climate risk into their work.

Concluding the panel, Prakash Loungani, Assistant Director for the IMF’s Independent Evaluation Office, provided comments and reactions to the trackers, noting that the GDP Center studies presented are an ambitious effort in scale and scope and will be valuable resource for tracking IMF actions and advice. Loungani also asked individual questions for each of the three studies presented, including how does the GFSN Tracker relate to similar trackers from other organizations; is there competition or coordination among GFSN providers; and do the ICS Monitor and IMF COVID-19 Recovery Index scores reveal the preferences of the IMF staff, or those of country authorities requesting assistance.

It is hoped that these studies and interactives will support the IMF’s staff and board of directors in their work to fund a more equal and sustainable future around the world.