Introduction
Climate vulnerable developing countries often fail to deal with the macro-financial risks caused by climate change. The transition and physical impacts threaten their debt sustainability, development prospects, and investment attraction. International Monetary Fund (IMF) and similar organizations can support the course of such countries. It is critical to note that much of the world’s economic development has been pushed by activities that have been tied to climate change. For example, oil is a scarce natural resource that has rendered the Middle East one of the world’s most significant carbon footprint contributors. Critically, developed countries have been linked to a higher carbon footprint than Third World nations. This can be attributed more to aspects of industrialization. Despite this, it is the Third World countries that are most affected by climate change. The realization of the economic impact of climate change led to the establishment of the V20 countries, a consortium of 48 countries that are vulnerable to the financial implications of the climate crisis. It can be argued that due to the high price these nations will pay, V20 countries should receive comprehensive assistance to mitigate climate risks and spur development.
The Argument
In their paper, Volz, and Ahmed (2020) discuss the adverse influence of climate change on V20 states’ economies. According to the authors, the V20 are the most vulnerable and the most likely to be affected by the adverse implications of climate change. Further, they argue that the IMF plays an important role in advancing the risks that these countries face regarding the same. This, therefore, also means that the IMF can be tasked to help the V20 countries develop their economies such that the negative implications of climate change do not affect them as much. They believe that more comprehensive and large-scale assistance from IMF is needed to maintain sustainability. Although IMF significantly diverted its attention toward climate challenges in 2015 and concluded related research, it still lacks timely interventions within its operational activity. The survey conducted by Volz and Ahmed (2020) revealed that central banks and finance ministries representing V20 members demand more technical, analytical, and financial support from IMF. What is more, the paper provides ten recommendations for further V20-IMF Action Agenda.
The role of the IMF in helping V20 countries regarding challenges caused by climate change starts with integrating climate risk analysis into economic surveys. It is critical to note that the IMF regularly conducts economic surveys of countries. These surveys check on economic growth and the ability to repay loans, which is essential for development. However, according to Volz and Ahmed (2020), the IMF has failed to do due diligence to incorporate climate change concerns in their surveys. This means that the organization does not factor in how issues such as global warming can impact a country’s economy. Critically, Volz and Ahmed (2020) explain that helping the V20 countries with money for mitigation is not enough. These countries also need technical support and separate climate emergency financing that is not part of the loans distributed by the IMF.
The Wider Debate (140)
The majority of studies on IOs’ roles point to the fact that their importance continues to grow. However, research conducted by McArthur and Werker (2016) highlights that IOs should quickly respond to the developing countries’ growing economic and political power by reconstructing the international order. It was found that citizens of countries involved in IOs programs trust the latter instead of their governments. One of the reasons for this is that the public believes that IOs are established in more stabled and controlled developed countries compared to their nation. Therefore, they can be trusted more due to better accountability measures in these countries. It is important to note that IOs still exert enough power to influence the authorities and policies of developing countries. This, however, tampers with the sovereignty of nations and is often discouraged. Due to this, political economy challenges still hinder the ability of IOs to solely solve the world’s collective challenges, such as climate change (Von Borzyskowski 2016). Nevertheless, the Paris Agreement of 2016 reinforced international efforts to adopt national strategies to pursue common goals. These efforts have helped concentrate focus on the climate crisis.
There has also been a debate on the role of IMF in ensuring that the loans they provide to countries are accounted for and used specifically for development and not recurrent expenditure. Clift and Te-Anne (2021) argue that the IMF has been keen on advancing loans specifically to Third World countries, making up a majority of the nations in the V20 consortium. If indeed the purpose of the loans was to enhance development, then the IMF can do more to ensure the countries also mitigate against challenges brought on by the climate crisis. Clift and Te-Anne (2021) further explain that the IMF has been able to capture the developing nations due to their relatively lower interests than other commercial lenders. It is essential to point out that finance ministers and other stakeholders have also stated the importance of mitigating issues caused by the climate crisis. The majority of these ministers have agreed that the IMF has to do more to help the V20 countries mitigate the stated risks and enhance development.
The Critique
The article under review provides an exhaustive list of climate change implications that may contribute to higher sovereign risk. The latter can indeed stem from climate-related disasters, mitigation policies, macroeconomic impacts, financial sector instability, and political instability. The authors also successfully identified the current high demand for IMF assistance among V20 countries in the early stage of analyzing possible negative implications. The authors argue that the systematic and transparent climate-related financial risks in all of the IMF activities are essential in helping nations mitigate the said risks (Volz & Ahmed 2020). Ideally, this will also affect the organization’s policy efforts. Further, the universal appraisal should be included as the impact of climate change cuts across various ecosystems. It is for this exact reason that developing countries find themselves with these challenges even though they have the lowest carbon footprints.
Critically, sustainable financing combined with technical support can help nations avert these challenges. Sustainable investment practices can also help lower the chances of risk associated with climate change. Volz and Ahmed (2020) suggest that one way the IMF can help the V20 countries is to ensure that the countries have synergy between their fiscal and monetary policies. It can be argued that whereas the suggestion is necessary, the IMF has to be careful not to be accused of interfering with the sovereignty of these nations. Thus, the organization can only advise and suggest as opposed to being fully immersed in ensuring the stated synergies. Critically, public financial management can help with the climate-proofing efforts of the V20. Technical support from IMF can help nations rethink their general financial management efforts to strengthen this further. Nevertheless, the paper looks too ambitious concerning recommended steps and prospects of cooperation. The reviewed literature shows the slow adaptation of IOs to the new power distribution and hindered response to collective challenges.
Conclusion
To conclude, the IMF will play a critical role in dealing with the economic effects of climate change on vulnerable countries. The fact that most of these vulnerable countries, referred to as V20 nations, also constantly receive loans from the IMF makes it more important for the IMF to ensure that the stated nations consider climate-proofing their economies. The reviewed paper gives several suggestions on what IMF can do to help the V20 countries. It is important to note that even though IMF has put some effort into considering climate change in their economic surveys, it has not been enough. One of the suggestions given in the reviewed article is the systematic and transparent assessment of risk associated with climate change in all of IMF’s programs.
Further, capacity building and technical support are also vital in helping the V20 mitigate challenges brought on by the climate crisis. Arguably, IMF started to develop capacity and strategy to assist the V20 states. The reviewed paper provides essential insights into the research area; however, it is too optimistic and lacks practical actions. The near future will show if IOs are capable of consolidating international players.
References
Clift, Ben, and Robles, Te-Anne. 2021. “The IMF, Tackling Inequality, and Post-Neoliberal ‘Reglobalization’: The Paradoxes of Political Legitimation Within Economistic Parameters.” Globalizations 18 (1): 39-54.
McArthur, John, and Eric Werker. 2016.”Developing Countries and International Organizations: Introduction to the Special Issue.” The Review of International Organizations, no. 11: 155-169. doi.org/10.1007/s11558-016-9251-2.
Volz, Ulrich, and Sara Jane Ahmed. 2020. “Macrofinancial Risks in Climate Vulnerable Developing Countries and the Role of the IMF–Towards a Joint V20-IMF Action Agenda.” The paper prepared for the V20 to support the development of a V20-IMF Joint Action Agenda, 2020.
Von Borzyskowski, Inken. 2016. “Resisting Democracy Assistance: Who Seeks and Receives Technical Election Assistance?” The Review of International Organizations 11(2): 247-282. doi.org/10.1007/s11558-016-9249-9.