Leveraging International Monetary Fund reforms and institutional quality to advance the energy transition in Sub-Saharan Africa

Abstract

The energy transition represents more than an ecological imperative; it is a catalyst for social and economic transformation. Although Sub-Saharan Africa (SSA) contributes the least to climate change relative to global emissions, it faces its gravest consequences. With most nations having engaged with the IMF multiple times, the region's development path remains closely tied to the Fund's influence. This study investigates how IMF-supported reforms and institutional quality jointly advance the energy transition without compromising its development plan consistent with SDGs 7, 13 and 16. Using data from 2000 to 2023 for 46 SSA countries and applying the generalised method of moments, the results reveal a significant positive relationship between IMF reforms and renewable energy, suggesting that financial restructuring and policy adjustments under IMF programs enhance SSA's ability to transition to renewable energy. Also, the institutional quality index, including government effectiveness, rule of law, and voice and accountability, positively drives energy transition. This underscores the critical role that good governance plays in fostering energy transition. Further, the study highlights that the impact of IMF reforms on the energy transition process is contingent on the strength of institutional quality. Thus, the extent to which IMF-driven reforms accelerate the energy transition depends largely on the quality of a country's institutional framework. The study suggests that for IMF policy frameworks to drive energy transition, they need to be complemented with strong institutions in SSA, suggesting the need for policy coherence between these two factors.