Co-sponsors: Recourse, Eurodad, FARN, Alternative Law Collective, Power Shift Africa, Christian Aid, ActionAid, BU Global Development Policy Center
Moderator:
- Iolanda Fresnillo, Eurodad
Panelists:
- Jon Sward, Bretton Woods Project
- Alexandros Kentikelenis, Recourse
- Fahmida Khatun, Centre for Policy Dialogue
- Stephane Hallegate, World Bank
- Andrea Gamba, IMF
Video of the event is available on the IMF’s website.
Jon: The Bretton Woods Project reviewed World Bank Development Policy Finance (DPF) from fiscal years 2018 to 2023, focusing on energy sector conditionalities. Of note, and a motivation behind the analysis of DPF specifically, is that it is an opaque instrument, with not only little public debate, but it is also excluded from consideration within the Environment and Social Framework – a long standing concern for civil society. As context around energy systems, the global trend towards neoliberal policies has led to the fragmentation and privatisation of energy systems globally (which only come about in the 1980s, before that it was very common for energy system to be publicly owned). Now with the climate crisis, there is a push to attract private capital for green transitions through de-risking measures.
In all of this, our findings of this report show us that DPF, a holdover from the structural adjustment loans of the 1980s, paves the way for this private sector led energy transition through the conditionalities it ties to its loans. Indeed, the energy conditions tied to DPF from 2018 to 2023 are a clear continuing of the WBG’s policy paradigm since the 1990s, focused ‘Washington-style’ policies led by the theory of change that through unbundling private sectors, introducing private sector participation, and establishing wholesale market (which has not happened in a lot of times) – this will lead to lower consumer prices (which has been proven wrong). This approach has implications, including concerns over net negative official flows from donor countries to the Global South and a race to the bottom to attract foreign investments, exacerbating wealth transfer from South to North. DPF represents just a fraction of a larger debate needed for a just and green energy transition. The policy paradigm in the energy sector requires open public debate and discussion.
Alexandros: The RSF aims to blend climate concerns into lending, with fresh funding totalling $42.8 billion in pledges and $16.7 billion in usable funds. However, most of this money requires countries to have an IMF program. New conditions are added, like upper-credit tranche programs, focusing on fiscal issues and sectoral reforms, especially in renewable energy. Although RSF has positives, it operates alongside IMF programs, often worsening austerity. This includes removing energy subsidies, raising questions about fairness in energy transitions and compensating affected people. Rising debt services eat up fiscal resources, calling for better coordination between RSF and IMF programs and clearer success standards. Qualification for RSF should change to allow more access to SDRs, and guidance on energy subsidies is needed to match just transition goals.
Iolanda: Fahmida, please share your experience or lessons from RSF conditionalities, but also more broadly around the structural conditions imposed by IMF programs from your experience in Bangladesh.
Fahmida: Based on the experiences of Bangladesh, Barbados, and Jamaica, and the report prepared, it’s evident that post-Covid and war, Bangladesh faced balance of payment challenges, receiving support from initiatives like the RST and ESF. The country’s vulnerability to climate change necessitates support from RSF, particularly for adaptation efforts. However, there are tensions regarding reform measures under RST, especially concerning removal energy price subsidies, which are important for Bangladesh’s agriculture-based economy.
Moreover, conditionalities under RSF often focus on short-term stability, which should align with long-term development goals of the country. Loss and Damage is a critical issue for Bangladesh, as economic losses from climate impacts exacerbate poverty and displacement. As recommendations, improving RST requires enhancements in resource mobilisation, elimination of concurrent programmes, holistic approach design (integrating short and long term), impactful finance catalysis, and stakeholder engagement for better outcomes.
Iolanda: A question for the World Bank representative, Hallegate: What are your thoughts on the concerns raised in the BWP report regarding bias towards private sector interests? Additionally, considering that conditionalities are seen as a continuation of the Washington Consensus imposed through SAPs, and given that SAPs haven’t been proven very efficient, what is the Bank’s stance on this? Furthermore, given the inefficiency of PPPs in terms of economic justice, with instances of failed projects and hidden debt, how does the Bank plan to address these issues?
Stephane: We are all facing a significant challenge regarding both the SDGs and climate change. The World Bank acknowledges the complexity of these issues and the ongoing learning process required. We prioritise impact evaluation and value diverse perspectives, recognising that we do not have all the answers to achieve zero emissions. Regarding development loans, we emphasise a comprehensive approach through Country Climate and Development Reports (CCDRs). These reports aim to integrate climate and development priorities, with the objective of achieving 45% climate co-benefits by 2025. We have already published 47 CCDRs, which serve as the foundation for broader discussions. It is important to note that while the World Bank Group produces CCDRs, they are not government plans, and we strive to align our initiatives with countries’ priorities.
We are committed to fostering dialogue around CCDRs, engaging with CSOs, governments, and other stakeholders. In low-income countries, where the needs are significant, we recognise the importance of combining development and climate efforts. While de-risking projects is essential, it’s not sufficient on its own. We believe that certain sectors, such as education and health, should be publicly financed, as they may not be profitable. However, where there’s potential for returns, the private sector may play a role, allowing public resources to be allocated elsewhere.
Iolanda: How do you think RSF should handle these measures, especially during the ongoing RSF review? And what about measures connected to fiscal consolidation? Weren’t rechannelled SDRs meant for Global South countries if quota representation was fairy allocated?
Andrea: When creating the RST as a trust, we turned to the World Bank and CCDRs. We are scheduled to go to the board for review on May 10th, but there won’t be many changes to the RST following this review – as an FYI. We are however working hard to make things better for countries and their people. There is a conflict between austerity and RSF. Regarding fiscal consolidation, our goal is not to achieve it but to ensure countries moving in the right direction in terms of macroeconomic stability. Take Morocco – while their policies are robust, they opted for RSF because its conditions differ from typical Fund engagements for stabilising the economy. RSF is not intended to address balance of payment stress. Concerning energy prices, subsidies, and social spending, we are trying towards aligning subsidies with improved social safety nets and higher social spending. We are also focusing on accountability and enhancing management controls to monitor where funds are allocated and hold governments accountable. We are open to further discussions on this matter.
Questions and answers
Civil society representative from Pakistan: In Pakistan’s CCDR, there is a strong emphasis on removing subsidies and unbundling the energy sector and increasing PS – aligning with the Bank and IMF’s approach since the 1990s (which Pakistan mostly implemented). There is controversy: That green energy is cheaper, but green energy projects are not receiving adequate private financing, with the WBG still funding coal projects. While the WBG claims to have undergone a paradigm shift, the situation on the ground in Pakistan raises questions about this. Despite previous funding packages, the approach appears unchanged.
Civil society representative from Christian Aid: The learning exercise for Fund and Bank in terms of playing with subsidies is costing lives.
Representative from Intelligence infrastructure corporation: Can you give more details about the private-sector funding mechanism you mentioned Gamba? And Hallegate, what’s the IFC’s role in selecting and advising on specific projects, and funding for the private sector?
Representative from Italy climate think tank, Eco: We focus on climate development pathways, with many suggesting funding for fossil fuels. How do you assess the risks of stranded assets in this regard, and how does it encourage exploration of alternatives? How does this tie in with NDCs, especially with the ongoing discussions in the G20 under the Brazilian presidency? And how can we integrate these conversations?
Jon: Can you explain how partners outside the Bank group are engaged in the CCDRs? How does the CCDRs prioritize different interests in this process? Also, how are climate diagnostics used for prior actions and RSF? It would be interesting to understand the internal process within the Bank when creating a CCDR, especially considering your mention of no ownership of that product, which relates to our concern about DPF prior actions supposedly being country-driven but not always appearing so. In broader discussions, one of our concerns is whether the risk is properly addressed. Are concepts like technology transfer and joint ventures, rather than take-or-pay models, being considered in CCDRs? Lastly, rich countries need to fulfil at least the commitments they’ve already made.
Alexandros: How can we extend the scope of more traditional IMF programmes to be more long-term, as you suggest with RSF? Additionally, regarding Paris Alignment, RSF implies readiness, but that encompasses a lot. BWIs not only offer funding but also establish the broad parameters within which policies are developed. What role does the IMF play in expanding policy space rather than following a narrow trajectory?
Khatun: Can you clarify how RSF and UCT can be separated, especially regarding funding? Funding is crucial, particularly for adaptation efforts, which may not be profitable for the private sector. This highlights the importance of public financing. Effective fund usage is vital, as it needs to be comprehensive and packaged appropriately to address both mitigation and adaptation needs.
Stephane: The main point I want to make is that we’re not just “testing” through learning; we recognise that predicting outcomes accurately is challenging, and we need to be prepared to anticipate this by acknowledging mistakes and offering solutions. It’s crucial to have diverse perspectives on the ground to guide us; we aim to identify issues before they escalate. Many recommendations in these reports focus on mobilising domestic resources rather than relying on external sources. While the WBG has conducted extensive work on distributional impacts, it’s heavily influenced by various factors, and data quality remains a challenge.
CCDRs aim to foster more discussions with local stakeholders and are implemented through Country Partnership Frameworks (CPF). However, there are discussions about expediting their implementation because waiting five years for CPF is not feasible. CCDRs aren’t prescriptive; instead, we focus on risk-sharing (determining who bears the cost if demand falls short). The goal is not just to use this information but to share it to influence pricing. Economics is key; it examines various scenarios, costs, benefits, and trade-offs, enabling governments to make informed decisions.
Andrea: With the Debt Sustainability Analysis (DSA), it’s important to speak with potential private investors and ascertain their needs. Clear commitments are essential to attract private investment, and maintaining policy space is crucial. This approach must be tailored to each country’s context to determine the most effective strategy. Capacity development is also vital, facilitated through RSF, which provides not just lending but also tailored policy advice to meet countries’ requirements.