The International Monetary Fund (IMF) has affirmed its position on the climate change global initiative. The IMF has stated its intention to engage with the global initiative by supporting its member states in alignment with the organisation’s mandated roles. On 16th July 2021, the IMF’s executive board convened a meeting during which a proposal paper was drafted strategising how to help members address climate change-related policy challenges. Among these strategies, the paper highlights macro-critical climate-related policy challenges that IMF members will confront in the coming years.
This came shortly after the International Monetary and Financial Committee meeting held on the 8th of April 2021 attended by the Organization of the Petroleum Exporting Countries (OPEC) secretary-general, H.E Mohammad Sanusi Barkindo. This was part of the spring meetings of the IMF and the World Bank Group’s board of governors. The meeting discussed the prospects of the oil industry’s recovery from the COVID-19 pandemic and the increased demand for oil in the market. Mr Barkindo during the meeting noted the importance of international energy cooperation as a response to large-scale uncertainties. He explained that OPEC member countries and their partners were united by a common cause. Through solidarity and unity, they were able to respond effectively to market challenges, confirming their unwavering commitment to sustainable oil market stability.
Both meetings showcase a gamut of IMF interests, however, they present an unprecedented anomaly. They strive to support member states in the global initiative for climate sustainability in line with the attainment and use of non-renewable energy. The very aspect that continues to contribute to climate destruction and has garnered support from multiple governments, corporations, and regional organisations, among others, signals the eventual end of oil use in the future.
The IMF continues to be funded by member states and yet shows support to private entities that contribute to environmental degradation. This raises questions about the priorities of the IMF and the allocation of state-donated funds, which should ideally be located toward supporting member states and shared interests. The ultimate paradox is trying to have one’s cake and eat it too.
OPEC was formed in 1960 by Iraq, Iran, Kuwait, Saudi Arabia, and Venezuela. Among some of their original interactions/ influences with the IMF include the 1970s oil shocks. This was in the wake of the Arab-Israeli war. During this period, the OPEC member states announced an embargo against the United States, Canada, Japan, United Kingdom, and Netherlands, as a retaliation for supporting Israel in the war, leading to a surge in global oil prices. In the long term, the crisis encouraged the development of new oil sources outside the Middle East such as the North Sea and deepwater assets, as well as alternative energy sources. This geopolitical environment shifted the main sources of OPEC’s clientele to Asia, with 70% of their crude oil purchases.
The IMF directors agreed that Financial Sector Assessment Programs should have a climate component where climate change may pose financial stability risks. This helps assess any potential pressure points for the financial system from physical climate shocks and from the transition to a low-carbon economy. A few directors insisted that this climate component should be aligned with the standards being developed by relevant international standard-setting bodies to ensure consistent policy advice. Some of these standard-setting bodies include; intergovernmental organisations, practitioner networks and associations, bilateral overseas development assistance (ODA) organisations, international financial institutions, international conventions, and agreements among others.
The IMF in action with its climate change supportive action policy has opened its wallet to Kenya and has supported the country’s action in its various endeavours to be key actors in the climate change platform. This includes the Africa Climate Summit where IMF staff were conducting market research on Kenya’s finance status. The IMF has also shown its support to the country during their address to the G20 compact with Africa. This, however, ties the hands of the Kenyan economy, as the agreement rejects the implementation of government subsidies, especially with the rapid rise of fuel prices. This in turn raises the cost of living at the expense of the Kenyan citizens.