Speech

IMF and World Bank Working Together to Scale up Climate Finance

July 17, 2024

I would like to warmly thank the authorities for hosting this kickoff meeting for scaling up climate finance for Benin. I would also like to thank the World Bank Group for co-convening and co-chairing this meeting with the government and the IMF.

The IMF, the World Bank Group, and development partners have supported climate-relevant policy reforms through budget support and through funding for relevant investment projects, across a diversity of sectors—primarily energy, transportation, and agriculture. Benin has been a front-runner on climate policy and finance in the region, both to build climate change resilience and to ensure low-carbon development. The agreement reached by Benin with the IMF in December last year, on a US$200 million Resilience and Sustainability Facility (RSF), aims to support the authorities in implementing their vision. This lending arrangement aims not only at supporting overall socio-economic resilience, but also at mainstreaming climate change in policymaking and addressing key structural challenges that expose Benin to climate shocks. It should help mitigate balance-of-payment risks and catalyze other sources of climate financing. The RSF has also contributed to creating momentum to implement recommendations from the Benin Country Climate and Development Report (CCDR) of the World Bank.

Benin has taken ambitious commitments for climate change adaptation and mitigation, outlined respectively in the National Adaptation Plan (NAP) and the Nationally Determined Contribution. Under the 2022 NAP, the authorities have committed to focus on agriculture, water, forestry, coastal erosion, health, tourism, and more broadly on reducing vulnerability across all key sectors. In Benin’s updated 2021 Nationally Determined Contribution, the focus is primarily on energy, agriculture, manufacturing, waste, land use and forestry. It reflects an increase in ambition to reduce emissions by 20.5 percent by 2030. The country has significant potential in developing solar energy, a sustainable food production export model, and a clean mobility strategy. Co-benefits from a low-carbon and resilient energy mix would mostly accrue in the telecoms, agriculture, water management, and transportation sectors, while increasing energy security and preventing future stranding of assets.

The IMF, through the RSF, and along with other development partners, aims to support the authorities in reaching these objectives. But the financing needs to achieve this vision are very large.

No single institution can finance on the scale that is required. The RSF by itself is not enough to do the job. Neither is the World Bank or other MDBs’ and other development partners’ lending in isolation. It will therefore be important to work together to mobilize additional climate finance from both public and private sources. Today’s meeting with development partners as well as international and local investors around this table demonstrates the willingness and commitment to undertake this task jointly.

We are by now all familiar with the barriers that constrain climate investments from flowing to emerging markets and developing economies (EMDEs). A lack of large investment grade opportunities, policy and governance challenges, illiquid markets, high upfront transaction costs, long-dated and volatile nature of cash flows of most climate investments, exchange rate volatility, and returns that don’t justify the perceived risk, to name a few.

Overcoming these obstacles requires a change of mindset—from the public sector, the private sector, and the multilateral institutions—to revamp the financial architecture to attract more private climate finance, especially for EMDEs. At the IMF, we have stepped up and embraced this change of mindset.

There is also recognition at the highest level in Benin that we need concerted action to undertake climate action, to maintain Benin’s status as a front-runner in implementing climate policy.

We therefore need “all hands on deck” to scale up climate finance in adaptation and in transition finance. Comprehensive and tailored climate policies, inter-ministerial cooperation and planning, innovative financial instruments, strong governance, and a stronger climate information architecture will prove crucial.

This is why today, other colleagues from the IMF and I have come here with our co-convening partner, the World Bank Group, as well as colleagues from many other development partner institutions, to engage with the Beninese authorities to help catalyze private climate finance in Benin, building on the CCDR and the RSF.

Our team has sent to you a concept note with key policy reforms, CD efforts, and financing options that have the potential to crowd in local, regional, and international investors. We hope to discuss in more detail today whether these priorities and options might be consistent with the Beninese authorities’ climate agenda. After this kickoff meeting, we hope to continue to work together in a joint working group format with you and the partners around this table to start the work on operationalizing any options that might be of interest to you. We are also hoping to discuss a timeline and identify a few solutions from the concept note that we could work together to operationalize at scale, so we can make some progress and announce a concrete plan during the COP29 meeting in November 2024.

We frequently underline the importance of country ownership to scale up action to confront the threat to climate change. And I would like to truly thank the authorities for engaging with us on this joint effort to mobilize climate finance.

People gathered here today have expertise in a variety of areas including in public and private investment, structuring financial instruments, and capacity development, among others. We share the common objective of scaling up climate finance, including crowding in private capital at scale, for Benin and more broadly in the region and elsewhere.

To deliver on this front, we need to combine policy reforms, capacity development, and innovative funding arrangements. Above all else, what we need today is unprecedented cooperation and coordination. Looking at everyone around the table today, I am confident we will deliver.