As calls for climate reparations grow amidst the worsening climate crises, the stark gap between them and global economic governance remains yawning – with Pakistan offering a poignant illustration.

Following historic monsoon flooding – which impacted one-third of the country’s districts and caused an estimated $10 billion in damages – Pakistan’s climate minister Sherry Rehman said in a September interview with UK newspaper The Guardian, “There is so much loss and damage with so little reparations to countries that contributed so little to the world’s carbon footprint that obviously the bargain made between the global north and global south is not working.” Rehman’s words echoed a growing chorus of Southern voices calling for climate reparations and debt relief to address loss and damage from climate change (see Observer Winter 2021).

However, the conditions associated with Pakistan’s recently restarted IMF Extended Fund Facility (EFF; see Observer Summer 2022, Spring 2022, Winter 2021) – the Fund’s executive board approved a $1.1 billion disbursement in September as part of the country’s efforts to ward off a sovereign debt default – demonstrated the macroeconomic straight-jacket in which many low- and middle-income economies find themselves. The IMF adjudged Pakistan’s debt to be ‘sustainable’ despite its debt repayments set to reach $22.5 billion in 2023, or 47 per cent of government revenues; according to World Bank data, 44 per cent of Pakistan’s debt over 2022-2028 is owed to multilateral institutions, including the World Bank and IMF (see Observer Autumn 2022).

There is so much loss and damage with so little reparations to countries that contributed so little to the world’s carbon footprint that obviously the bargain made between the global north and global south is not workingPakistan climate minister Sherry Rehman

The mini-budget approved as part of the restarted EFF requires widespread tax increases, the removal of consumer fuel subsidies, and power sector reforms, while also setting rigid limits on public spending, in line with wider IMF austerity prescriptions (see Observer Autumn 2020). Although Pakistan’s government did a U-turn on previously announced plans to scrap tax exemptions on imported solar power components (see Observer Spring 2022), other tax exemptions for green technology were removed from Pakistan’s IMF-backed budget, raising questions about the IMF’s commitments to align its lending operations with national climate goals (see Observer Autumn 2021).

Debt-free finance to face the climate emergency and inter-linked crises found wanting

Pakistan is facing its plight as the IMF is preparing to launch its new Resilience and Sustainability Trust (RST) at the 2022 Annual Meetings this month (see Observer Spring 2022). The Trust will make use of ‘rechannelled’ IMF Special Drawing Rights (SDRs), which will be lent to the Trust by IMF member states who have surplus SDR reserves. IMF Managing Director Kristalina Georgieva hailed the RST as the third pillar of the Fund’s lending, which will “help build resilience against long-term risks to balance of payments stability,” including those related to climate change, after its establishment in April. However, the RST’s eligibility requirements, which require countries to have another IMF lending programme in place, raise questions about how the IMF will promote resilience to climate shocks while insisting on rigid limits to public spending. The RST will also provide financing via loans – albeit highly concessional ones with long grace periods – rather than grants.

An alternative solution, one which would not further increase countries’ debt, would be a new issuance of SDRs. Research published in April by US-based think tank CEPR shows that the 2021 issuance of $650 billion of SDRs (see Observer Autumn 2021) was widely used by at least 105 IMF members to help cushion the blow of the initial pandemic, including $80.4 billion worth of SDRs used for fiscal purposes by at least 69 countries. A civil society letter to the IMF board sent in early October called for a “new general issuance of at least $650 billion worth of debt-free Special Drawing Rights (SDRs),” noting, “The great majority of the world’s countries are struggling amid multiple historic, overlapping, and generally worsening crises.”