Cutting Trees to Balance Budgets: International Monetary Fund Programs are Associated with Increased Deforestation

International financial institutions (IFIs) are increasingly expected to support environmental and climate goals. Among them, the International Monetary Fund (IMF) plays a central role in shaping economic policy across much of the Global South through its lending programs. However, little systematic evidence exists of the environmental consequences of these programs, including their potential effects on deforestation.

A new journal article by Timon Forster, Rishikesh Ram Bhandary and Kevin P. Gallagher published in One Earth determines that the IMF rarely targets forest management: only 34 of 35,915 conditions administered to low- and middle-income countries in the last four decades pertain explicitly to forest management. Additionally, IMF programs are associated with a 9.2 percent increase in annual tree cover loss between 2000 and 2020. These effects are driven by fiscal and external sector reforms, suggesting that IMF borrowers seek to consolidate fiscal spending, potentially on environmental protection, and extract economic value from natural resources. These findings indicate that understanding national environmental outcomes requires greater attention to international determinants.

If deforestation was a country, it would be the third-largest emitter of greenhouse gases in the world, only after China and the United States. According to the University of Maryland and World Resources Institute, tropical primary forest disappeared at a rate of 18 soccer fields per minute in 2024—nearly double the rate in 2023. In addition to the carbon-intensive process of clearing forests, deforestation has long-lasting and difficult-to-reverse consequences for climate change because it reduces the earth’s capacity to absorb greenhouse gases. Beyond climate change, lower forest cover contributes to desertification and decreased biodiversity—meaning that reducing deforestation is critical to conservation strategies.

Deforestation is a national and global policy problem, and it is one with clear financial implications. Stopping global biodiversity loss, for instance, is estimated to require an additional $600–$800 billion per year. To close this funding gap, IFIs like the IMF, the World Bank and regional development banks need to step up their efforts. But despite calls for the IMF to include sustainability assessments in its lending programs dating to at least the mid-1990s, little is known about how the IMF considers environmental issues in its advice and how this affects forest-related outcomes.

Main findings:

• The IMF very rarely targets the forest sector explicitly in its policy advice. In the full text of 35,915 conditions attached to IMF lending arrangements in low- and middle-income countries from 1980-2019, only 34 include explicit targets for forest management. This lack of focus on the forestry sector does not preclude the possibility that countries implement IMF programs in ways that affect deforestation.
• Regression analyses of a sample of 109 emerging market and developing countries from 2000-2020 indicates that an IMF loan is associated with an increase in annual tree cover loss by 9.2 percent. Assuming an average 3-year duration of an IMF program, this implies that each IMF loan is, on average, associated with a decrease in forest area nearly equal to the size of Barbados.
• The effects are concentrated in low-income countries, arguably the countries that are in most need of financial resources.

What explains the link between IMF programs and increased deforestation?

• Financial support by the IMF is conditional on the implementation of policy reforms. If subsequent economic growth does not materialize, then governments may seek to raise additional funds by increasing their production and export of agricultural products, including trade in forest products.
• Fiscal consolidation measures are a cornerstone of IMF programs, and governments frequently cut expenditure on non-core activities such as forest management and conservation initiatives.

Achieving forest restoration at the scales required to meet climate and biodiversity goals will require both multilateral actors and the mobilization of private finance. Future work could build on the study’s findings by integrating forest loss into a broader assessment of how IMF policies influence countries’ overall climate and environmental trajectories.