IMF explores ways to help countries confront climate change policy challenges

Global warming is bound to undermine productivity and growth in the coming years, multilateral lender says

The IMF says countries must build greener and more climate-resistant economies after the Covid-19 pandemic. AP

The International Monetary Fund is exploring ways to help its members to address climate change policy challenges as global warming threatens to undermine productivity and growth, affecting the fiscal positions of governments and their debt trajectories.

Climate change is expected to affect asset valuations, with repercussions for financial stability, and also redistribute income around the globe, which will influence trade patterns and exchange rate valuations.

This will make it critical for the fund to play a bigger role in climate-related activities, the Washington-based lender said in a statement on Saturday.

The fund is discussing a paper that proposes strategies on how the multilateral institution can play a role in promoting policy co-ordination between countries to mitigate climate change, the fund said.

"To live up to its mandate ... the IMF needs to assist its members with addressing these challenges," it said. "The time has come for a systematic and strategic integration of macro-critical aspects of climate change into the IMF’s core activities."

In April, the fund urged countries to take swift action on climate change to avert future disasters, accelerate the push for greener economies and boost the economic recovery from the Covid-19 pandemic.

A policy mix of carbon taxes and green investment stimulus could increase the level of global output in the next 15 years by about 0.7 per cent and create about 12 million new jobs through 2027, IMF managing director Kristalina Georgieva said at the time.

The new IMF paper proposes covering climate change-related policy challenges comprehensively during economic consultations with countries.

The fund aims to ensure it discusses these issues with all members every five to six years, but more frequently with the largest emitters of greenhouse gases and countries particularly vulnerable to climate change.

It also suggests expanding coverage of climate risk to all financial stability assessments and a substantial scaling up of climate-related capacity development activities.

The IMF's executive directors welcomed the proposed strategies and agreed that climate change is a "global existential threat that poses critical macroeconomic and financial policy challenges" for member countries in the coming years.