The IMF's Misstep on Climate Finance
The IMF’s allocation of $650 billion in special drawing rights in August was long encouraged and widely welcomed. But its follow-up proposal for channeling finance to the most climate-vulnerable countries is so flawed that it would exclude many of the neediest.
MANILA/SANTIAGO – The International Monetary Fund seems determined to dilute one of the best examples of global cooperation in response to the economic disruptions induced by the COVID-19 pandemic and climate change. It must change course now, before it is too late.
The IMF’s allocation of $650 billion in special drawing rights (SDRs, the Fund’s reserve asset) in August was long encouraged and widely welcomed. Given the IMF’s tight rules, it was clear from the start that the vast majority of SDRs would go to countries that did not need them. As a result, G7 leaders pledged to re-channel upwards of $100 billion of their allocations to “countries most in need of … pandemic [support to] stabilize their economies, and mount a green and global recovery … aligned with shared development and climate goals.”
While these moves seem small compared to the $17 trillion that rich countries have spent to support their economies during the pandemic, they were nonetheless significant. In October, just two months after the allocation, the G20 backed a plan by the IMF and the World Bank to develop and implement a Resilience and Sustainability Trust, which would allow wealthy countries to channel their allotments to low- and middle-income countries vulnerable to economic shocks. Because the RST could be used to address risks related to climate change, it would fill a glaring gap in international finance. The IMF announced that it would have a proposal ready for its 2022 spring meetings.