EXPLAINER: Here’s why IMF’s climate change focus matters to Nigeria

The International Monetary Fund (IMF) on Monday said it was placing climate change at the heart of its work, a move that not only signals where the global economy is heading but could eventually determine how they agree to assist troubled economies including Nigeria’s.

Kristalina Georgieva, IMF’s managing director, in remarks made to the High-Level Session of the Climate Adaptation Summit 2021, said the multilateral institution was embracing the transition to the new climate economy because the changing climate presented a fundamental risk to economic and financial stability.

This matters to Nigeria, which is currently benefiting from the IMF’s US$3.4 billion emergency financial assistance, because it could struggle to convince multilateral institutions for further support if it continues programmes like fuel and electricity subsidies or fails to come up with policies to tackle the impact of climate change on its economy.

In a release issued Monday, the IMF said its research shows that combining steadily rising carbon prices with a green infrastructure push could boost global GDP over the next 15 years by about 0.7 percent and generate work for millions of people.

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“This is why at the IMF we embrace the transition to the new climate economy — one that is low carbon and climate-resilient, that helps fight the causes of climate change and adapt to its consequences,” the IMF said.

This decision will affect how the organisation carries out its work.

“First, integrating climate in our annual country economic assessments – our Article IV consultations. In highly vulnerable countries we focus on adaptation; and we are building up mitigation analysis, including carbon pricing, in our assessments of large emitters,” the organisation said.

During an Article IV consultation, an IMF team of economists visits a country to assess economic and financial developments and discuss the country’s economic and financial policies with government and central bank officials. The outcome of this discussions can influence the decision of the board to provide support to the country.

An IMF staff team led by Amine Mati, senior resident representative and mission chief for Nigeria, visited Lagos and Abuja from January 29-February 12, 2020 to conduct its annual Article IV Consultation discussions on Nigeria’s economy.

The mission advised the government to tighten monetary policy and embark on structural reforms, including ending direct central bank interventions, ending subsidies and executing the much-delayed power sector recovery plan.

According to the Bulgarian boss of the IMF, the new goal of placing climate change at the heart of their work will also mean “climate-related financial stability risks in our financial sector surveillance – through standardized disclosure of these risks, enhanced stress tests and assessments of supervisory frameworks”.

“Third, scaling up climate in our capacity development to help equip finance ministries and central banks with the skills needed to take climate considerations into account.

“Fourth, mainstreaming climate indicators in macroeconomic data. We will launch a Climate Change Dashboard this year—with indicators to track the economic impact of climate risks and the measures taken to mitigate them,” Georgieva said.

For developing countries including Nigeria, climate change presents existential threats. Climate change is evident in the increases in temperature; variable rainfall; rise in sea level and flooding; drought and desertification; land degradation; more frequent extreme weather events; affected fresh water resources and loss of biodiversity.

“Left unchecked, it will cause adverse effects on livelihoods such as crop production, livestock production, fisheries, forestry and post-harvest activities, because the rainfall regimes and patterns will be altered, floods which devastate farmlands would occur,” said Adekunle Idowu of the University of Agriculture, Abeokuta, and Simeon Ayoola of the University of Lagos, in their study published in the Iranica Journal of Energy & Environment.

The scholars further said that an increase in temperature and humidity will increase pest and disease and other natural disasters like floods, ocean and storm surges, which not only damage Nigerians’ livelihood but also cause harm to life and property.

The current farmer-herder crisis witnessed in some parts of Nigeria, analysts say, has roots in climate change impacts.

This is why the IMF counsels that as countries aim to exit the COVID-19 pandemic and the economic crisis it has triggered, a changing climate presents a greater threat to economic and financial stability, but it is also an opportunity to reinvigorate growth and create new green jobs.