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Dear maria, Ahead of next week's COP27 conference, today's edition of the Weekend Read focuses on climate change. IMF Managing Director Kristalina Georgieva warns that net-zero rhetoric does not match reality and calls for further emissions cuts. We spotlight sub-Saharan Africa’s vulnerabilities to climate change, methane’s overlooked contribution to global warming, resurface recent blogs on the cost of delays to climate action and the challenges of scaling up climate finance in developing economies, and much more.

Climate Change Getting Back on Track to Net Zero Why Countries Must Cooperate on Carbon Prices (ADOBE STOCK/SIDOROVSTOCK) This year the increasingly devastating effects of climate change have become clear with typhoons in Bangladesh, floods in Pakistan, heatwaves in Europe, wildfires in North America and droughts in Africa. If global warming continues, scientists predict more devasting disasters and long-term disruption to weather patterns that will cause more human suffering and economic upheaval. Writing in a blog ahead of next week's COP27 climate conference, IMF Managing Director Kristalina Georgieva calls for action on three fronts to deliver a cleaner planet with less pollution, more resilient economies and healthier people. The good news is that about 140 countries—accounting for 91 percent of greenhouse gas emissions—have already set or proposed net-zero targets for around mid-century. The bad news is that net-zero rhetoric does not match reality. Actually getting to net zero by 2050 means most countries need to do even more to strengthen their targets for cutting emissions—large economies especially. As Georgieva writes, “If we don’t act now, then the devastation and destruction of climate change—and the threat to our very existence—will only get worse.” Visit IMF Blog for more coverage of climate change next week and see all our work in this area including staff climate notes, videos and more on the IMF's climate page.     F&D Ricardo Hausmann on Green Growth (IMF PHOTO/TAMARA MERINO) In a new F&D online article, Harvard economist Ricardo Hausmann asks you to picture yourself as finance minister of a developing economy. Imagine that campaigners try to persuade you to cut greenhouse gas emissions, but you have other policy priorities and even if you were to succeed, your impact on the climate would be miniscule. Yet it would be a grave mistake not to consider climate change as an important aspect of your job. Asking countries to contribute to global decarbonization by prioritizing the reduction of their own carbon footprints is unhelpful, Hausmann says. “Creating value and livelihoods at home by helping the world decarbonize is a more promising proposition. Because these are new challenges, they are bound to be open to new players. You can be one of them. The payoffs could be huge.” Read the full article   The latest edition of F&D Magazine (September 2022) focused on Cryptocurrencies, Central Bank Digital Currencies, and the future of finance. Other topics included inflation, the food crisis, the economics of fertility, and much more. Authors included Eswar Prasad, Augustin Carstens, Ravi Menon, Tobias Adrian, Fabian Schar, Aditya Narain, Carlo Pizzinelli, Michele Tertilt and many more.

Delaying Climate Policies Will Hurt Economic Growth Countries will pay an economic price for curbing greenhouse gases, but the longer they wait to shift to carbon neutrality, the larger the costs. In a blog, IMF economists Benjamin Carton and Jean-Marc Natal say climate policies must be credible or investment in low-emitting technologies will not take place. This would slow the transition and policies would have to become more stringent to reach the same decarbonization goal. “We estimate that only partially credible policies could almost double the cost of transitioning to renewables by 2030.”

Climate Finance in Emerging Economies Private climate financing must play a pivotal role as emerging markets and developing economies seek to curb greenhouse gas emissions and contain climate change while coping with its effects. Private finance must at least double by 2030, at a time when investable low-carbon infrastructure projects are often scarce and funding of the fossil fuel industry has soared since the Paris Agreement, the IMF’s Torsten Ehlers, Charlotte Gardes-Landolfini, Fabio Natalucci and Prasad Ananthakrishnan write in a blog that proposes key solutions.

Africa's Climate Change Vulnerabilities Sub-Saharan Africa is more vulnerable to climate change that any other part of the world despite cumulatively emitting the least greenhouse gases, according to a new IMF staff climate note. Substantial financing is urgently needed across the economy to support climate change adaptation and mitigation, which are critical for advancing resilient and green economic development as well as meeting commitments under the Paris Agreement. Yet in recent years the region has received annual climate-finance flows of less than $20 billion, representing only around a quarter of global total.

Investing For a Greener World A joint video ahead of COP27 by a group of international financial institutions aims to raise awareness of the impact of climate action through the personal stories of beneficiaries, from Saint Lucia to the Philippines, Romania and Uganda. The IMF is supporting this initiative within the context of its mandate to assist its member countries in addressing climate change to safeguard their macroeconomic and financial stability and promote economic growth.

Countries must slash emissions of greenhouse gases to keep global temperature targets in reach and limit risks of destabilizing the world’s climate. Most attention has focused on carbon dioxide produced by burning fossil fuels, but it is also critical to cut methane emissions—not least because methane has a more powerful warming effect than CO2 and cutting emissions would have a more immediate impact on the climate. As the Chart of the Week by Simon Black, Ian Parry and Nate Vernon shows, global greenhouse gases must be cut by 25 percent to 50 percent by 2030 to limit global warming to 1.5-2 degrees Celsius—the central goal of the Paris Agreement. Reducing methane emissions could lower the stock of greenhouse gases in the atmosphere and cut the scary risks of “tipping points”—when climate change becomes self-perpetuating. This is because methane stays in the atmosphere for only around a decade compared with up to a thousand years for CO2.

WEEKLY ROUND-UP 01. Climate Price Shocks Climate change is likely to lead to more frequent and more severe supply and demand shocks that will present a challenge to monetary policy formulation, according to an IMF staff paper. The paper finds that the impact of climate shocks on inflation depends on the type and intensity of shocks, a country's income level, and its monetary policy regime. Specifically, droughts tend to have the highest overall positive impact on inflation, reflecting rising food prices. 02. America's Inflation During COVID An IMF staff paper analyzes the dramatic rise in US inflation since 2020. It finds that the rise in core inflation is due to the tightening labor market and the "pass-through" of headline inflation from past shocks. The headline shocks themselves are explained largely by increases in energy prices and by supply problems as captured by backlogs of orders for goods and services. 03. Digital Money and Balance Sheets The impact of digital money on the financial sector depends on the sort of money it replaces, according to an IMF staff paper. The paper looks at several cases where substitution of currency in circulation and bank deposits takes place via digital money such as central bank digital currency and other forms of e-money. It investigates how this impacts central banks’ balance sheets. 04. India’s Monetary Policy Forward guidance and other innovations in the communication of monetary policy by India’s central bank during the initial waves of the pandemic played a pivotal role in moderating financial uncertainty and supporting some asset prices. An IMF staff paper also finds that the relationship between monetary-policy surprises and yields for government and corporate securities across all maturities are positive and statistically significant.

Nick Owen Editor IMF Weekend Read nowen@IMF.org   Thank you again very much for your interest in the Weekend Read! Be sure to let us know what issues and trends we should have on our radar.

Dear maria, We just published a new blog—please find the full text below.  Getting Back on Track to Net Zero: Three Critical Priorities for COP27 (Photo: sidorovstock/Adobe Stock) By Kristalina Georgieva Just this year we’ve seen the increasingly devastating effects of climate change—human tragedy and economic upheaval with typhoons in Bangladesh, unprecedented floods in Pakistan, heatwaves in Europe, wildfires in North America, dry rivers in China, and droughts in Africa. This will only get worse if we fail to act. If global warming continues, scientists predict even more devasting disasters and long-term disruption to weather patterns that would destroy lives and livelihoods and upend societies. Mass migration could follow. And, failure to get emissions on the right trajectory by 2030 may lock global warming above 2 degrees Celsius and risk catastrophic tipping points—where climate change becomes self-perpetuating. If we act now, not only can we avoid the worst, but we can also choose a better future. Done right, the green transformation will deliver a cleaner planet, with less pollution, more resilient economies, and healthier people. Getting there requires action on three fronts: steadfast policies to reach net zero by 2050, strong measures to adapt to the global warming that’s already locked in, and staunch financial support to help vulnerable countries pay for these efforts. Net zero by 2050 First, it’s vital that we limit further temperature rises to less than 1.5 degrees to 2 degrees. Delivering on that by 2050 requires cutting emissions by 25‑50 percent by 2030 compared to pre-2019 levels. The good news is that about 140 countries—accounting for 91 percent of greenhouse gas emissions—have already proposed or set net-zero targets for around mid-century. The bad news is that net-zero rhetoric does not match reality. Actually getting to net zero by 2050 means most countries need to do even more to strengthen their targets for cutting emissions—particularly large economies. And there is an even bigger gap on the policy front. New IMF analysis of current global climate policies shows they would only deliver an 11 percent cut. The gap between that and where we need to be is massive—equivalent to more thanfive times the current annual emissions of the European Union. We desperately need implementation to catch up. That will require a mix of incentives to push firms and households to prioritize clean goods and technologies across all their decisions. The ideal policy mix would include pricing carbon, including cutting fossil fuel subsidies, along with alternative measures that can achieve equivalent outcomes, such as feebates and regulations. To complement domestic policies, an international carbon price floor agreement would provide one way of galvanizing action: asking large emitters to pay a minimum price of $25-$75 per ton of carbon depending on their national income level. And with alternative policies, this does not mean taxes per se. It would be collaborative, pragmatic, and equitable. Of course, the overall policy package should include measures to reduce methane. Cutting these emissions by half over the next decade would prevent an estimated 0.3 degree rise in the average global temperature by 2040—and help avoid tipping points. It is also critical to include incentives for private investments in low-carbon technologies, growth-friendly public investments in green infrastructure, and support for vulnerable households. The new IMF analysis has encouraging projections for an equitable package that would contain global warming to 2 degrees. We estimate that the net cost of moving to clean technology—including the savings made by avoiding unnecessary investments in fossil fuels—would be around 0.5 percent of global gross domestic product in 2030. This is a tiny amount in comparison the devastating costs of unchecked climate change. But the longer we wait, making the shift would be far more costly and more disruptive. Urgent need to adapt But mitigation action is not enough. With some global warming already locked in, people and economies everywhere are paying the price every day. And, while the world’s larger economies contribute the most and must deliver the lion’s share of cuts to global greenhouse gases, smaller economies pay the biggest costs and face the biggest bill for adaptation. In Africa, a single drought can lower a country’s medium-term economic growth potential by 1 percentage point, creating a government revenue shortfall equivalent to a tenth of the education budget. This underscores the importance of broad investments in resilience — from infrastructure and social safety nets to early warning systems and climate-smart agriculture. In fact, for around 50 low-income and developing economies, the IMF estimates annual adaption costs will exceed 1 percent of GDP for the next 10 years. In many cases, these countries have exhausted fiscal space during nearly three years of crises ranging from the pandemic to rampant inflation. They urgently need international financial and technical support to build resilience and get back on their development paths. Climate finance: innovate now Doing more on climate financing is also vital. Advanced economies must meet or exceed the pledge of $100 billion in climate finance for developing countries—not least for equity reasons. But public money alone is not enough—so innovative approaches and new policies to incentivize private investors to do more. After all, the green transformation brings vast opportunities for investments in infrastructure, energy, and more. It starts with stronger governance and integrating climate considerations into public investment and financial management that can help unlock new sources of financing. Proven financial instruments will also be important—such as closed-end investment funds that can pool emerging market assets to provide scale and diversify risks. And multilateral development banks or donors must do more to encourage institutional investors to come in—for example, by providing equity, which currently makes up only a small share of their commitments. One promising new area: unlocking capital from pension funds, insurance companies and other long-term investors that collectively manage over $100 trillion of assets. Another consideration is how better data facilitates decision and investment. That’s why the IMF and other global bodies are standardizing high-quality and comparable information for investors, harmonizing climate disclosures, and aligning financing with climate-related goals. Role of the IMF The IMF recognizes that the critical importance of the green transformation, and we have stepped up on this issue, including through our partnerships with the World Bank, the Organisation for Economic Co-operation and Development, Network for Greening the Financial System, and others. We are already incorporating climate considerations in all aspects of our work. This includes economic and financial surveillance, data, and capacity development, together with analytical work. And our first ever long-term financing tool, the Resilience and Sustainability Trust, now has more than $40 billion in funding pledges, along with three staff-level agreements with Barbados, Costa Rica, and Rwanda. The support for this instrument shows the enduring power of cooperation to overcome global challenges. If we don’t act now, then the devastation and destruction of climate change—and the threat to our very existence—will only get worse. But if we work together—and work harder and faster—a greener, healthier, and more resilient future is still possible.   Jeff Kearns Managing Editor IMF Blog jkearns@IMF.org   Thank you again for your interest in IMF Blog. Read more of our latest content here. Take good care!

Africa Burundi Strives to Emerge From Waves of Economic Shocks Juan Alberto Casado/iStock by Getty Images By Mame Astou Diouf and Jocelyn Koussere Burundi’s economy has been challenged by the COVID-19 pandemic and Russia’s war in Ukraine. However, the economy is showing resilience, with economic growth expected to strengthen in 2022 to at least 3 percent, according to a recent assessment by the IMF. Macroeconomic hurdles persist in Burundi, including deteriorating terms of trade and accelerating domestic inflation that is threatening already challenging living standards. The effects of the war in Ukraine have driven food and fuel prices up, with overall inflation at 20.9 percent at end-September 2022, from 10.5 percent at end-August 2021. Before the war in Ukraine, the economic outlook of Burundi had been promising, with growth projected to a robust 4.7 percent in the medium term, supported by several positive effects including the impact of reforms, projects in the agricultural and mining sectors, and financial deepening. Economic growth prospects remain strong, also supported by the country’s progressive reengagement with the IMF and the international community more generally. The lifting of US and EU sanctions—a legacy of Burundi’s 2015 political and security crisis—is emblematic of this reengagement. This year, the IMF Executive Board completed Burundi’s first Article IV consultation since 2014. With technical assistance from the IMF, the government is taking steps to reform its foreign exchange market, which if implemented, would help replenish the country’s international reserves.  **** Mame Astou Diouf is a Deputy Division Chief and Jocelyn Koussere is an economist in the IMF's African Department. RELATED LINKS Burundi and the IMF Press release Regional economic outlook Dear maria, In a new F&D online article, Harvard’s Ricardo Hausmann asks you to picture yourself as finance minister of a developing economy. Imagine that campaigners try to persuade you to cut greenhouse gas emissions, but you have other policy priorities and even if you were to succeed, your impact on the climate would be miniscule. Yet it would be a grave mistake not to consider climate change as an important aspect of your job. Asking countries to contribute to global decarbonization by prioritizing the reduction of their own carbon footprints is unhelpful, Hausmann says. “Creating value and livelihoods at home by helping the world decarbonize is a more promising proposition. Because these are new challenges, they are bound to be open to new players. You can be one of them. The payoffs could be huge.” Read the full article F&D September Issue The Money Revolution: Crypto, CBDCs, and the future of finance The ongoing money revolution and its implications for finance, monetary policy, international capital flows and society at large is the focus of our September edition. F&D delves into Crypto and CBDCs by drawing on cutting-edge research and analysis from economists and other leading experts including Agustín Carstens, Eswar Prasad, Ravi Menon, Tobias Adrian and many others. Want to get a print copy delivered to your home or office? Click here to subscribe.   Have Your Say What do you think of this article? Please write to us directly and let us know your thoughts. We would love to hear from you. Nick Owen Senior Editor F&D Magazine nowen@IMF.org