IFI governance


Green and just? Climate in IMF surveillance & lending – evidence from Pakistan, Argentina, South Africa, Indonesia

11 October 2022 | Minutes

Organisers: Bretton Woods Project Co-sponsors: Alliance for Climate Justice and Clean Energy (ACJCE), Alternative Law Collective (ALC), Christian Aid, Eurodad, Fundación Ambiente y Recursos Naturales.


  • Jon Sward, Bretton Woods Project


  • Thomas Stubbs, Recourse
  • Zain Moulvi, Alternative Law Collective,
  • Chiara Mariotti, Eurodad
  • Nathan Porter, Advisor, IMF’s Middle East and Central Asia Department, IMF
  • Ricardo Llaudes, Deputy Division Chief, Western Hemisphere Department, IMF


Jon Sward opening remarks:

One of the reasons for this panel is that last year the IMF launched its staff strategy on climate, which outlined how the Fund is seeking to align climate with all sections of its work. The Fund acknowledged climate as one of the biggest macro challenges and called for a significant uplift of Fund’s capacity (95 new staff) across different departments. In the area of surveillance, it proposed to cover climate in up to 60 Article IV per year (including coverage of the three large buckets of adaptation, resilience and transition management)

Research by BU GDPC research in 2020 showed that in the same year, article IVs had barely looked at transition management.

Thomas Stubb:

Report launched by Recourse looking at the climate-related implications of IMF lending programs in Argentina and Pakistan, with a focus on surveillance.

The report answered two key questions:

  1. To what extent IMF programs is consistent with enabling a transition away from dependency on fossil fuels
  2. As such, are they aligned with a just transition and safeguards and the rights and needs of the poor in societies?

Focused on Argentina and Pakistan, as both have undergone IMF programs and are among the top 32 countries for global greenhouse gas emissions and also quite vulnerable to the effects of climate change, especially Pakistan.

The study was based on analysis of loan doc and interviews with stakeholders.

Argentina case:

42million IMF program March 2022

Midst of full-blown economic and social crisis since 2008 exacerbated by Covid and Ukranian war. Inflation raised to 40 per cent. IMF loan helped Argentina avoid going into default, allowing the country to pay back its debt, although most of this was owed to the IMF itself as the result of previous programs.

Study conducted before the 1st review of the program.

3 key findings

  1. Program called for reducing energy subsidy bill by 0.6 per cent of GDP with further reductions for subsequent years – Reforms supported climate objectives by raising prices of fossil fuels, but missed opportunities of fostering green transition in the long term, such as reorienting savings from cancelled subsidies to the green transition.
  2. Energy investment – IMF encouraged the development of strategic traceable sectors. IMF endorsed private investment in exploration, production and transportation of energy from the shell, gas and oil reserves in Vaca Muerta, which allowed the country to become an exporter of energy and reduced its dependency. The IMF missed an opportunity to explore large investments in renewable energy production.
  3. IMF considered fiscal risks linked to climate change in the program, such as climate-induced commodity exports shocks. The report found negligible coverage of such risks. For example, it failed to identify global spillovers into mixed transition risks due to the government’s economic dependency on the reserves in Vaca Muerta.


IMF 6billlion lending program started in March 2021, initially approved in July 2019, and interrupted due to the pandemic. The program responded to urgent balance of payment problems, linked to high commodity prices. Another review completed in September was not considered in the report.

3 key findings:

  1. IMF conditionality included very controversial tax reforms to achieve fiscal consolidation. This resulted in increased taxes for imported electric vehicles and other renewable energy technologies. This disincentivised investment in green energy from corporations, including fossil fuel-based producers. The reforms also failed to safeguard the needs of the poor as they impacted the lives of poor communities dependent on wind and solar energy production for their farms.
  2. Energy sector reforms. The IMF imposed conditions to reduce energy subsidies throughout a sector restructuring. These reforms could have supported climate focus by increasing the price of fuel, but they overlooked longer reforms, as once again, they only focused on short-term solutions. For example, via public investment in cheap renewable energy could allow for financially long-term solutions to address the sector’s current deficiency.
  3. Coverage of fiscal transition risks, which was again quite negligible in the program. The analysis was too vague to be of substantial use. The IMF failed to quantify the macroeconomic benefits of environmentally sound policy.

The IMF provides mixed messages in relation to green transition and just recovery goals.

Zain Moulvi:

Would like to flag two things about Pakistan’s floods:

  1. The causes are completely anthropogenic.
  2. Systemic shifts: There has been a complete change in the monsoon patterns. It’s not a natural nor a one-time event. Pakistan has been experiencing this for almost two decades.

Outlook dominated by floods, droughts, lack of water, forest fires, heat waves…

The rhetoric suggests that the Fund is aware of this condition. However, there is a massive gap between rhetoric and reality. Six levels of what IMF’s climate fails looks like:

  1. IMF is actively impending climate action solutions by derailing local efforts for just transition through its loans.
  2. Ignoring the problem by failing to integrate climate systematically in its policy advice and programs
  3. Aggravating the problem by imposing measures that limit fiscal space for adaptive action, erode capacity for community-based resilience, and exacerbate the impact of climate catastrophes
  4. Refusing to fulfil its obligations under Paris Agreement by not developing a new climate compatible and socially just finance models
  5. Contributing to global warming by continuing with risky finance flows and sustainable paradigms of economic development
  6. Entrenching a destructive global financial architecture by reinforcing the equally inequitable paradigms of other MDB’s like WB

True cost integrated analysis of the above-mentioned levels. Taking 6th review of EFF program in Pakistan, there are inconsistencies with the local solutions, they are completely out of sync with Pakistan’s alternative and renewable policy goals as well as its national electric vehicles policy goals.

  • Level 1: Taxes on renewables imposed via “prior actions” under EFF program, derailing Pakistan’s energy transition
    • This crippled local renewables market, is inconsistent with Pakistan’s plans for Energy and transport sectors and imperilled NDC goals (60% renewables-based generation and 30 per cent electric vehicles by 2030)
  • Level 2: Ad-hoc approach to climate in the EFF program squandered the opportunity to prepare for catastrophes.
    • There was no analysis of trade-offs between reforms and climate resilience and adaptive actions, no stress tests on climate risks and debt sustainability, and no resilience plan.
  • Level 3: Fiscal consolidation measures (EFF 7th and 8th review) exacerbated the damage and impact of the floods.
    • These are the ones that truly exacerbated the problem: Fiscal austerity, especially the removal of energy subsidies, is historically tied up to rise in costs of living and social growth slow down, decreasing access to electricity, healthcare, affordable transport, education levels (especially for women), purchasing power.
  • Level 4: Debt-services burdens and loan conditionalities compromised Pakistan’s capacity to invest in climate and explain its reluctancy to pursue RST, precisely because it is wrapped up with the same problems.
    • $60 trillion of total external debt, which is equal to 90 per cent of the country’s GDP, of which $1.4 trillion is owed to the IMF. Pakistan ranked 32nd least country out of 182 ready to tackle climate
  • Level 5: IMF’s neoliberal policy orthodoxy contributes to global climate shifts that have led to these floods.
    • Climate averse and unjust finance flows: creditor-driver lending terms, crowding in investors for climate finance, privatisation of energy, historical support for fossil fuel…
  • Level 6: IMF and WBG lending conditionalities tend to reinforce each other and amplify climate-incompatible outcomes.
    • Pakistan is unable to access “clean energy” PACE loan monies until a successful review of its EFF loan while EFF review and tied to successful adoption of WB’s energy sector reforms blocking up access to funds and amplifying the adverse effects of climate incompatible policy advice. IMF and WB reviews also influence other lender and investor interest

Two case studies, LBOD and Badin:

LBOD drainage project, which, in a 2006 review of the Inspection Panel was described as a technically and environmentally risky project that led to major harm to the ecosystems, upon which many people depend for their livelihoods.

This brings up the issue of the interplays between IMF and WBG operations and how they are a double hit for the Indus basin:

  • Annual flooding in lower Sindh not just tied up to global warming, but to expensive, environmentally risky, debt-creating infrastructure projects backed up by WBG and facilitated by IMF programs
  • Economic costs of the fallout of the LBOD run close to $2 billion, with losses and damages estimated even higher
  • Community testimonies from Badin and Sajawal, noting that flooding has become a permanent part of their lives and their need to migrate in the rainy season, which has become impossible due to the rise in price of petrol, after the IMF deal.
  • IMF’s 2015 staff report on water reforms, which did not address failures on existing infrastructure project and their connection to ecological disasters; no ethical analysis of the fairness of debt servicing for an admittedly failed project; or no cost-benefit analysis or plans for mitigating the economic and climate risks of continues investment in such projects.
  • EFF program is repeating these problems: It successfully reviewed GOP’s adoption of WBG energy sector reform, which advocated for hydropower and categorises it as clean renewable source, in direct violation Pakistan’s ARE Policy, which expressly excludes it
  • RST Fund design is repeating the same errors as the 2015 IMF report, it’s a replication of the same methodology

How do we diagnose the failures? The IMF’s policies suggest it is all greenwashing: The EFF staff report recommends policies such as the “wider use of renewables”, “ensuring adequate protection of the most vulnerable” and “implementation measures for meeting Pakistan’s COP26 NDC targets”. On the other side, the 6th review of the EFF program resulted in a tax regime diametrically opposed to the IMF’s own climate recommendations and fiscal austerity measures guaranteed to exacerbate the climate crisis.

The way forward requires radical reforms such as:

  • Immediate restructuring of the EFF program on Do No Harm and adaptation first principles
  • Develop new and adequate climate finance solutions, in short, medium and long term. For instance, creating non-debt and condition-free grants, cancel all debt, debt servicing, surcharges, loss and damage connected to bad policy advice, making RST condition-free and combining it with Debt-for-Nature-Swaps.
  • Align IMF paradigms with Paris Agreement goals and principles of climate justice and just transition
  • Reform analytic and institutional practices. For instance, IMF interventions should be preceded by greater transparency and dialogue with stakeholders, and its advice and programs should be subject to peer review by independent experts nominated by local stakeholders.

Chiara Mariotti

Reflecting on RST and more broadly on IMF engagement in climate

IMF is now putting climate now on top of its agenda as it has been recognised as macrocritical, as it affects economic global and growth.

The IMF is late for the fighting climate change actions in terms of expertise but also as there is a legal and policy framework that was established to regulate climate policy and finance. These are UN agencies, such as the UN Agreement on Climate Change and the Paris Climate agreement. These are institutions that differentiate responsibilities, polluters pay, and operate on a system of 1 country – 1 vote, unlike the IMF. It is important to address this as the IMF enters climate action.

The Paris Agreement established that rich countries need to help the poorest countries to be climate financed, both for mitigation and adaptation, and needs to be free via grants – non-conditional.

High level of indebtedness – climate change is putting countries into more debt. New “Riders in the Storm” report by Eurodad, which looks at climate and debt in Small Island States: countries spend 8 times more in debt repayment than they receive in climate finance. 31 out of 37 critical debt situation (cutting public services…)

RST was created to try to solve part of this problem, providing concessional finance to vulnerable countries for climate adaptation. CSOs are concerned about eligibility criteria (need to have a program under IMF for instance in order to access the Funds); issues about the content of conditionality that may undermine climate transition; democratic ownership (IMF programs that may demand policy reforms that may not be desired by the indebted countries); this may delay assistance from the RST and therefore delay in implementations.

The RST is scary as countries may want to seek support, increasing IMF influence in climate transition in these countries.

RST is seen as playing a catalytic role for bringing in private finance for climate finance, and derisking the private sector participation. Creating incentives for private climate to come in, in line with what the Bank has been doing for more than a decade, via its cascade approach. Private capital entering new fields, which may be problematic.

Two considerations:

  1. The existing policy framework that regulates climate action is not exactly the steps followed by the Fund.
  2. The most important thing the Fund can do to help cope with the climate crisis is to find a way to address the debt crisis (ie by reissuing SDRs, cancelling surcharges

Nathan Porter

One thing that is not maybe highlighted is how important the Fund is taking the issue of just transition and climate change. The Fund has been gearing up, announced the new strategy in 2021, and the process is ongoing.

Commenting on the Pakistan case:

It was established in 2019 and designed to deal with macroeconomic instability. restoring macroeconomic stability is the foundation of how and why the IMF acts.

Protecting vulnerable and making sure that there’s quality education and health care as the foundation of that problem

On fiscal area 1 core goal: ensure to create additional revenue to provide space for investments in social protection, including through climate mitigation and adaptation. The IMF acknowledged that these have not been achieved

Also the program was trying to make sure there was good private management processes – better spending, targeted in the areas as well as addressing corruption issues.

Under the current program, we looked at prospects for climate mitigation, in particular on price signals, subsidies, taxation, technical transfer and external support. Number of policies already, for instance, trying to get prices right on energy, for example price incentives for renewables, raising costs of fuels.

There was no review of exemptions for electrical vehicles. We discussed broad goals for raising revenues but the decisions were made by the government.

Under all IMF programs, the IMF discusses options with governments but ultimately is the government who makes the decision on what policies to implement to deliver on the objectives of the program.

We understand there are more things to be done – especially pushing for adaption in Pakistan

The RST could really help financing climate transition.

Ricardo Llaudes

Talking about the Argentina case.

Background of engagement in Argentina: the objective was to safeguard and establish macro stability, as well as addressing social challenges.

Objectives based on 2 pillars: fiscal order and resource accumulation (by creating more space for more resources for the government to spend more on social spending)

The green transition would require a big deal of investment, which was key to the IMF program in Argentina.

On the energy sector authorities have a 2-track strategy: short run one was to reduce energy subsidies (segmentation scheme with tariffs adjusted based, increased for consumers with better capacities and lower for those with least capacity). Now in progress.

In the middle-term, the authorities have developed a strategy together with the World Bank to secure the stability of the energy sector. Improve energy efficiency, and introduce resources on renewable energies to support climate transition. Authorities have other projects aside from the natural resource of Vaca Muerta, like the Hydropower plant in Santa Cruz. These are key to lowering energy prices in Argentina and bringing accessibility to these resources.

EFF second review done – moving forward to the third review.

Remarks by Leandro Gomez, from FARN, Argentina

Pointing out some flags and issues. Understand Argentina’s complicated situation in terms of macroeconomic instability

Very concerned about IMF suggestions to increase the energy production, oriented to exports and not local production. Expansion of gas and oil deposits, such as Vaca Muerta. Exapnsion of fossil fuels, especially offshore oil and fracking in Vaca Muerta is causing significant environmental and social impacts: violation to environmental assessment, population displacement… All related to the subsidies policies promoted by the IMF.

Cutting subsidies to the consumption of fossil energy could seem aligned with the transition to green energy. However, at the same time Fund is supporting subsidies to the production of them and companies like BP to produce or explode fossil fuels in the South of Argentina.

Is the government and the Fund missing an opportunity to develop stronger investments in renewables in Argentina?

RST: Argentina is evaluating to request funding via RST. Argentina’s government is talking about gas as a way for the energy transition. RST could be an instrument to support the idea of gas as an energy breach or greener option in Argentina.

The idea of RST can be used as a market-led transition – transition should be centred on the people and not on financial markets.

Ricardo Llaudes

Authorities made Vaca Muerta the cornerstone of the energy strategy to address the energy crisis. The authorities used Vaca Muerta as short-term solution to address the balance of payments: attracting investment, lower energy cost both internationally and domestically.

The IMF is not prescriptive in terms of the type of investments the country makes. It tries to create an environment that enables investment.

In terms of client-level subsidies, the subsidies for producers are quite small, they are not even 10 per cent of those for consumers. The IMF is trying to address the fiscal constraints subsidies are posing to the budget. It is trying to improve targeting.

Regarding RST, authorities are working on improving the EEF, and are not looking or discussing access to RST.


Question & Answers

Rick Rowden (American University): To Thomas. A point that has been mentioned very quickly but not developed enough was, when the IMF talked about reducing subsidies on fossil fuel energy consumption, why have not these subsidies gone to renewables as they could help the country achieve environmental and economy sustainability overtime? About public investment and the potential developmental importance of that in the long term. Can you elaborate on the importance of that topic?

Thomas: part of the problem is the time frame issue. Short-term fiscal experience, which is typically 3-5 years, what usually where the IMF analysis lies. The results of renewable are seen after around 10-20 years. The IMF analysis does not go beyond the time frame where we can see the economic results of these policies.

Jon Sward: To Nathan. In the case of Pakistan, one of the goals was to increase investment in climate adaptation and mitigation. This has not been achieved. Can you elaborate on why this happened?

Nathan: We’ve been successful in for example an increase in social spending. There was a very ambitious revue goal. It was no longer feasible that this would be achievable during the length of this program. Creating the space to protect the vulnerable, etc, will be an ongoing challenge

Juan Pablo Bohovslaky: To IMF representatives. Was there any warning from IMF about environmental implications in the exploitation of Vaca Muerta? If there was one did this follow the IMF guidelines on the macro critical effects and the environmental implications?

Ricardo:  That is an ongoing discussion with authorities. We make a point that needs to be a transition towards a greener economy. Argentina also needs to pay attention towards other sources of energy. Vaca Muerta was a short-term solution to solve the government’s problems, but the investment in renewables and work towards a greener economy is an important part of the government’s agenda/.

Zain: If we take Thomas points seriously, it would have gone better if the IMF did not suggest these investments in energy. Even in WB research, going this way we are looking at 6 billion losses in Pakistan every year. There’s no possible way this can be sustainable. If you look at how to increase fiscal space and the resources for that need to come from the country, this cannot be done without looking at the long term. There is no analysis of where these resources will be coming from, especially in terms of climate adaptation.

When the IMF says, “we do not tell the countries what to do in terms of tax reforms”, looking at the EFF program, there is specific language on tax policy reforms. When talking about exemptions, which included medicines and food, why was not climate added in? It does not make analytic sense. Is there an analytic problem? Are there any constraints on what the IMF can talk about agenda needs to be? What’s going on behind the doors?

Nathan: The goal we had within the program was to create space for investment – including climate investment, but that would be the government’s decision to decide where to put their budget money. We believe we are still getting the pricing right: Taxation on fuels but at the same protection for the vulnerable (for example, through tariff structure of electricity …)

Ricardo: in Argentina, authorities were very keen to look at two things, scaling up public investment and protect social spending. IMF works together with countries to create the space, but the authorities decide on how the composition of the program will target those issues.

Iolanda Fresnillo (Eurodad): Have there been any talks internally to protect countries that are vulnerable to climate, for example, to include climate clauses that would allow the countries to stop paying for a period of time after being hit by an extreme climate event?

Ricardo: I am not aware of any of these sorts of talks. There are instruments, such as the rapid financial instrument, but in the original design there’re no structures or plans for that kind of actions.

Nathan: it would be interesting to see how those could work and then build on that experience.

Nezir (Recourse): How close do you work with World Bank, especially in the policy lending arms side of things, in-country programs?

Nathan: We do coordinate and discuss issues regularly but we work independently.

Ricardo: In the case of Argentina there is a close dialogue, especially in terms of the energy sector, for example, World Bank supports with expertise in this area.

Jon closing: there’s a sense of urgency. We need to start bending the curb of emissions this decade. The next years are going to be tough. As Kristalina Georgieva pointed out in her CSO townhall, next years are going to be tough, but if we do not address the climate emergency we are all cooked. We need to develop climate policy that is fit for purpose.