SPI Journal, Autumn 2023
Amplifying voices

A comprehensive and coordinated approach is needed to meet collective climate goals

Bo Li, deputy managing director of the International Monetary Fund, spoke with OMFIF’s US chairman Mark Sobel, on COP28 and climate transition.

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This is a transcribed and edited part of their conversation on the global effort to fight climate change, the IMF’s objectives for COP28 and its present activities in climate mitigation and adaptation. The video recording is available here.

Mark Sobel: The United Nations climate change stocktake indicates that where world leaders speak of holding the increase in temperature by the end of this century to 1.5 Celsius above pre-industrial levels, the world is now on track for 2.5 degrees or more. Given the increasingly dire outlook, could you give us an idea of how the IMF sees the importance of COP28 and what are your main objectives?

Bo Li: The global stocktake provides an opportunity to correct course and reaffirm our commitment to addressing the climate challenge collaboratively. As you note, the world is not on track. To meet the Paris Agreement goals, we need to cut global emissions by 25 to 50% by 2030 to contain the temperature rise to between 1.5 to 2 degrees Celsius. But according to our calculations, current mitigation targets would only deliver an 11% cut. Against that background, we have three high-level messages for COP28.

First, we need to revise nationally determined contribution targets for 2030 to increase ambition in an equitable manner. Second, concrete monitorable mitigation actions are needed, for implementation to be accelerated globally. For instance, implementation could be accelerated globally via agreements on minimum carbon prices or equivalent measures among major large emitters. Third, drastic increases in mitigation investments and adaptation investments are also needed, requiring policies to shift private sector incentives.

Given the limited fiscal space in many vulnerable countries, international assistance will be necessary. Beyond climate finance, there is great potential for reducing emissions from upgrading current technology in emerging markets and developing economies to low-carbon technology. This requires a comprehensive and coordinated approach to overcome domestic and external barriers to technological diffusion.

MS: For EMDEs, private sector finance must play a key role to help achieve net zero. Chapter 3 of the IMF’s latest Global Financial Stability Report observed that the private sector must put up 80 to 90% of the $2tn annually by 2030. What’s your take on whether the private sector is willing to come to the table in such magnitudes and how is it going so far?

BL: The 2022 and 2023 GFSR chapters on climate finance in EMDEs outline the hurdles to private investment more generally, and climate investments more specifically. We see three priorities, the first of which is policy reform. We need to support EMDEs to put together a policy environment to support climate investment. That could include carbon pricing, but also other measures in the financial sector that can remove hurdles to climate investment.

The second priority we see is capacity building– a key constraint to private sector investment. Many more bankable projects are needed and the facilities to pool investments would help to increase scale. In this regard, we need to support EMDEs to develop a pipeline of bankable projects, which requires training and technical assistance.

The third priority is de-risking arrangements. The private sector is generally willing to take credit risks, but they expect to have de-risking support for sovereign risks and foreign exchange risks. More blended finance structures are needed to reduce these risks, and thereby cut financing costs, which are often too high for EMDEs. International efforts, such as Just Energy Transition Partnerships, offer some promise towards structuring financial packages for accelerating the transition to renewable energy.

MS: The IMF is a macroeconomic organisation with a shorter-term focus, and clearly, climate change has a macro dimension. What is the Fund’s role in climate change? And how do you respond to US Treasury under secretary Jay Shambaugh’ speech, where he concluded: ‘The IMF should not be experts on climate issues. Instead, it should focus on macro-critical issues and rely on the World Bank and others for sectoral expertise. In short, solving major world challenges should involve reinforcing the core mandate, not straying from it.’

BL: I'm sure this question is on the minds of some of the audience here. Why is the IMF working on climate? By taking a macro, longer-term approach and focusing on improved macro policy frameworks, the IMF is filling a gap that is not covered by institutions focused on project financing. Few other institutions provide policy lending for climate. This is within our mandate and our expertise. Climate issues have become integral to our work, including surveillance, capacity building and lending. Where we need sectoral expertise, we collaborate closely with the World Bank and other development partners.


Our regular programme and surveillance work helps countries improve their macroeconomic stability and their policy and investment frameworks, which in turn help attract climate and development finance. More than that, we are working on incorporating climate into both bilateral and multilateral surveillance. For example, in the top 20 emitters of the world, we're now looking at their mitigation policies, and how they could impact their macroeconomic and financial stability.


For middle-income and low-income countries that are susceptible to climate disasters, we are now incorporating adaptation policies into our regular Article IV consultation. We realise adaptation efforts are key for these countries to build long-term macro resilience. So in our financial sector assessment programme, we are now incorporating climate into financial institution stress testing.

In terms of technical assistance and capacity development, we help countries build technical capacity relating to climate in a range of areas, including fiscal policy, carbon pricing, fuel subsidy reform, and green public financial management. Capacity building efforts also include macroeconomic modelling, financial sector analysis and statistics. Finally, in terms of lending, we have this new instrument, the Resilience and Sustainability Facility, that support countries to implement reforms so that they can build long-term resilience in their macroeconomic and financial policy frameworks. It is also acting as a catalyst to help countries to scale up climate finance.

MS: Since you've mentioned the RSF – a major plank of the Fund's efforts to help countries address climate issues – maybe you can tell us how the RSF is coming along.

BL: The RSF has been operational for only one year. But our Board has already approved 11 countries to receive support under this new facility. These programmes are providing over $5.7bn in terms of long-term, affordable financing to support the 11 countries in their building of long-term climate resilience, with many more countries in the pipeline. We have received over $40bn commitments from many developed and emerging market countries to support this new facility.

The facility’s programmes have sought to prioritise comprehensive reforms targeted at countries’ specific challenges, where the Fund has expertise. This includes integrating climate consideration into public investment management, public-private partnership frameworks and green public financial management. It accounts for budget preparation, execution, reporting and auditing processes, risk assessments for macro-financial and disaster risks, and energy transition measures.

In addition to policy reforms, given the substantial climate financing needs of EMDEs, no single institution can provide the financing at the required scale. In addition to our policy advice and financial support through RSF arrangements, we have been convening roundtables with a wide array of stakeholders in several RSF countries to identify and explore solutions to climate finance challenges. For example, concurrent with its RSF arrangement, Rwanda has attracted additional budget financing commitments and set up a green fund facility to crowd in more climate finance, both from the public and private sector. In essence, a key goal of the RSF is to play a strongly catalytic role.

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