10.11.2022

Press Release

Recourse

For immediate release   

IMF advice on fossil fuels is basis for cautious optimism, but support for austerity threatens to undermine climate ambition

 Amsterdam, 10 November 2022

Today, Recourse and its partner organisations Earthlife Africa Jhb in South Africa and Trend Asia in Indonesia published a new policy report highlighting how recent International Monetary Fund (IMF) policy advice to Indonesia and South Africa has impacted these countries’ phase-out of fossil fuels, including coal. These two G20 nations rely heavily on fossil fuels for energy and to generate export revenues.

The authors of the study, professors Thomas Stubbs of Royal Holloway (University of London, UK) and Alexander Kentikelenis of Bocconi University (Italy), report that the IMF’s advice provides reason for cautious optimism.

After years of relative neglect of climate issues and their economic implications, the IMF surveillance reports must now explicitly cover climate-related risks and vulnerabilities, and address sustainability questions. These recent innovations matter because they shape governments’ policy trajectories, thereby influencing socio-economic prospects and the global fight against climate change.

The analysis of the IMF’s 2022 recommendations to Indonesia and South Africa reveals that the IMF’s practices are in line with its promises. Coverage of climate change adaptation and mitigation issues is more extensive than ever before, and the underlying analytical work is increasingly sophisticated. But problems still remain.

In the case of Indonesia, the IMF advice emphasises green financing, promotes climate change mitigation, and supports climate-friendly tax policies. But these suggestions come against a backdrop of advocating extensive austerity measures, which can impede green transition objectives. Budget cuts reduce government investment in climate adaptation and mitigation measures and limit available support for households to adapt to climate change.

The IMF advocates for a budget deficit ceiling of 3% of GDP by 2023, despite the financing needed to achieve Indonesia’s Nationally Determined Contributions targets alone amounting to 2.8% of GDP annually. Andri Prasetiyo of Trend Asia in Indonesia said: “Such targets represent a threat to Indonesia transitioning away from fossil fuel dependence and achieving its climate commitments, as investment in climate adaptation and mitigation measures needs to be scaled up. The IMF needs to change its approach in Indonesia by targeting support for fiscal instruments that allow Indonesia to meet its climate targets, especially by promoting investments in renewable and sustainable energy.”

In South Africa, the IMF’s suggestions for austerity measures threaten to undermine the ambitions set out in South Africa’s climate commitments on adaptation and a just transition.

Makoma Lekalakala of Earthlife Africa in South Africa said: “In South Africa, the IMF endorses expenditure cuts to reduce the fiscal deficit in a way that limits the capacity of households and the private sector to adapt to and mitigate climate change. Furthermore, the IMF continues to promote investments in the mining sector in the country. Such promotion is clearly counter to a green transition and, as a carbon-intensive activity, there is imminent risk that such investments will become stranded assets. IMF interventions need to be aligned with the Paris Agreement and bring an end to any incentives for the fossil fuels industry, at the same time as promoting strong interventions to support the clean renewable energy sector.”

Broadening out from the report’s findings, lead author Dr. Thomas Stubbs said: “While initial progress is promising, there is still room for improvement if the IMF is to play its part in facilitating a shift away from fossil fuels, including coal. Most importantly, the IMF should expand its consideration of climate-related trade-offs in designing economic policies and move beyond its advocacy of carbon taxes as the primary means to achieve climate goals.”

Commenting on the significance of this report, Nezir Sinani of Recourse said: “The IMF’s new approach to climate mitigation policy advice is a welcome development. Nonetheless, it does not go far enough to address the climate emergency. The IMF’s interventions do not reflect the horizon of policy imagination for government intervention with respect to phasing out fossil fuels, including coal. The IMF must consider additional incentives— such as producer subsidies—for investors to enter the clean renewable energy market, or for ambitious new forms of government investment and operations in clean renewables solutions.”

-ENDS-

A copy of the report can be downloaded from the following link: https://www.re-course.org/wp-content/uploads/2022/11/Cautious-optimism_web.pdf

For more information, contact:

Nezir Sinani, Co-Director of Recourse at nezir@re-course.org or +31 61 482 0789

Thomas Stubbs, lead author of the report at thomas.stubbs@rhul.ac.uk or +44 75 2277 2306

Makoma Lekalakala, Director of Earthlife Africa Jhb at makoma@earthlife.org.za or +27 82 6829 177

Andri Prasetiyo, Program Manager of Trend Asia at andri.prasetiyo@trendasia.org or +62 87 8834 53112