IMF Fund allocation in Sri Lanka for Climate Change Impact mitigation

The Executive Board of the International Monetary Fund (IMF) approved US$ 3 billion under the Extended Fund Facility (EFF) to Sri Lanka according to the press release on the 20^th March 2023. Sri Lanka has been in dire straits for the last couple of years due to a catastrophic economic and humanitarian crisis. We ended up here due to pre-existing vulnerabilities and policy missteps in addition to a series of external shocks.

Regardless of the progress made under the EFF program in 2016, subsequently several events like the 2017 drought, the 2018 political crisis, and the 2019 terrorist attacks aggravated the vulnerability of the country. Following 2019 flip in government unsustainable policies were implemented involving significant tax cuts and delays of anticipated reforms, which further increased threats to the economy. After the Covid-19 pandemic hit, the country was too far gone to be recovered on our own.

According to the IMF country report the program objectives are,

A. Advancing Revenue-Based Fiscal Consolidation, Reforms to Social Safety Nets, Fiscal Institutions, and State-Owned Enterprises

B. Restoring Public Debt Sustainability

C. Restoring Price Stability and Rebuilding External Buffers

D. Ensuring Financial Stability

E. Reducing Corruption Vulnerabilities

F. Raising Potential Growth

The Climate Fact Checks team investigated how the IMF funds have been allocated for Climate Change adaptation and mitigation in the country.

Integrating Climate Change Adaptation into Fiscal Policy

The IMF staff Climate Note 2022 includes, how to plan and mainstream adaptation to Climate Change in Fiscal policy. Since adaptation to climate change is an integral part of sustainable development and a necessity for advanced and developing economies alike. The question on how to plan adaptation strategies to be mainstreamed into the fiscal policy is discussed.

The primary prerequisite is mentioned as setting up inclusive coordination mechanisms and strengthening legal foundations to incorporate climate change. And this includes 4 building blocks.

1. Taking stock of present and future climate risks, identifying knowledge and capacity gaps, and establishing guidance for next steps.

2. Developing adaptation solutions. This block can be guided by extending the IMF three-pillar disaster resilience strategy to address changes in both extreme and average weather and would cover the prevention of risks, the alleviation of residual risks, and macro-fiscal resilience.

3. Mainstreaming these solutions into government operations. This requires strengthening public financial management institutions by factoring climate risks and adaptation plans into budgets and macro-frameworks, and in the management of public investment, assets and liabilities.

4. Providing for transparent evaluations to inform future plans. This involves continually monitoring progress and regularly updating adaptation plans.

When looking at the existing Climate Change adaptation strategies in Sri Lanka, it is still very superficial and restricted to only selected groups of the country. However, adaptation in its core meaning should be empowering local smallholders, ensuring food and water security, biodiversity conservation, sustainable biomass energy production and increased disaster risk reduction and management. Yet the required attention has not been allocated by the country to the vulnerable communities.

Moreover, the IMF report mentions the importance of Identifying climate vulnerabilities and adaptation gaps. Which includes stock-taking and synthetizing information on climate change impacts and climate vulnerabilities; information gaps, capacity gaps, and weaknesses in terms of planning for adaptation; developing a roadmap for the NAP process and its implementation; and establishing guidance on normative principles for adaptation. It also mentions the importance of Identifying adaptation solutions which starts with addressing information gaps by supporting, disseminating, and training on relevant climate adaptation data and concepts with all stakeholders. Further, this involves identifying potential solutions to identified climate vulnerabilities and adaptation needs that coincide with national development plans, estimating the costs and benefits of adaptation options as well as their distributional impacts, and communicating these solutions to the public. In addition, the report highlights the importance of Mainstreaming adaptation in public financial management (PFM). Which means the strategies need to be included in national development plans, sectoral plans and strategies, disaster risk management plans, spatial planning, building regulations and other activities in the country.  Much needed prominence is also given to enhancing implementation capacity as well as monitoring, evaluation, and reporting. This involves continually monitoring progress made, reevaluating adaptation plans, and regularly updating those plans.

There is much improvement to be brought about in the economy of the country, and due to this sufficient fund have not been allocated for the environment or issues pertaining climate change. However, what we need to realize is that Climate Change is and will be a key area that needs focus when it comes to budget planning in the future. Sri Lanka is a country more vulnerable to the impacts of Climate Change, compared to our contribution to it. Hence we need to give primary attention to Climate resilience and adaptation as opposed to Climate Change mitigation.