The International Monetary Fund’s Role in Fighting Climate Change
On March 2, the Georgetown Americas Institute (GAI) hosted a discussion with Kristina Kostial and Uma Ramakrishnan, deputy directors in the International Monetary Fund (IMF) Strategy, Policy, and Review Department, about the IMF’s involvement in the response to climate change. The event was moderated by GAI Director Alejandro Werner.
How the Climate Crisis Impacts Finance
Kostial emphasized that while the climate crisis poses an obvious and significant threat to development, public health, and poverty reduction efforts, it also threatens financial stability.
“Climate change is an urgent macroeconomic policy challenge that falls under the IMF’s mandate.” - Kristina Kostial
As the world redistributes spending in response to climate change, this will impact trade and exchange rates. For example, the transition to clean energy sources will affect growth prospects and competitiveness. If the transition is not organized properly, it will have serious financial consequences.
What Can Governments Do?
Kostial affirmed that fiscal, financial, and structural policies are key levers to address climate change. Both Kostial and Ramakrishnan pointed to data gathering as a crucial step in this policymaking process. However, mechanisms to acquire proper data are scarce in many developing countries, and even if they do have the data, the issue of disclosure poses a significant obstacle.
The deputy directors shared that the IMF is integrating climate change into its debt sustainability assessments, making sure loans to governments remain sustainable for countries that are most affected by climate change. The IMF also provides support for countries looking to finance climate resilience and mitigation projects.
The Path Forward
As a tangible example of the International Monetary Fund’s commitment, Ramakrishnan highlighted the IMF’s new Resilience and Sustainability Trust (RST), a climate-focused trust designed to help countries with long-term structural challenges exacerbated by the climate crisis. This includes helping them look at fiscal policy through a climate lens and making funds readily available to mitigate risks. For example, the RST includes a disaster risk financing option to offset financial damage in countries prone to natural disasters.
Kostial and Ramakrishnan confirmed RST is already partnering with Costa Rica, Barbados, Rwanda, and Bangladesh. Noting that demand is strong, they are optimistic that the program will expand into other countries.
“We need to build momentum for climate finance.” - Uma Ramakrishnan.
Finally, the directors concluded by stressing that good communication and IMF coordination with other institutions, such as the World Bank and the private sector, is critical to help countries integrate climate change into their macroeconomic policies.