Policy Papers

Adaptation to climate change is a necessity for advanced and developing economies alike. Policymakers face the challenge of facilitating this transition. This Note argues that adaptation to climate change should be part of a holistic development strategy involving both private and public sector responses. Governments can prioritize public investment in adaptation programs with positive externalities, address market imperfections and policies that make private adaptation inefficient, and mobilize revenues for, and distribute the benefits of, adaptation. Although the choice of what should be done and at what cost ultimately depends on each society’s preferences, economic theory provides a useful framework to maximize the impact of public spending. Cost-benefit analysis, complemented by the analysis of distributional effects, can be used to prioritize adaptation programs as well as all other development programs to promote an efficient and just transition to a changed climate. While compensations may be needed to offset damages that are either impossible or too expensive to abate, subsidies for adaptation require careful calibration to prevent excessive risk taking.

Adaptation reduces climate change damages but is costly and cannot eliminate all risks. Governments have to decide on an acceptable balance of residual risks and to determine adaptation investment needs by weighing costs, benefits, and distributional effects. A literature review suggests that well-designed and well-implemented adaptation can have large returns. Global public adaptation needs in 2030 are estimated in the literature at around ¼ percent of world GDP per year, but with very large disparities across countries and high uncertainty. Our analysis points to annual adaptation costs exceeding 1 percent of GDP for some developing countries, and above 10 percent of GDP for some island states. Many of these countries—despite typically not having contributed to global warming—face high adaptation needs while being challenged by limited fiscal space, limited capacity, or both, calling for additional support from the international community. To help guide national fiscal policies, countries could integrate climate risks and the cost of adaptation into their macro-fiscal frameworks. Shock scenarios are useful to reflect short-term impacts of climate disasters, while the long-term analysis of risks and uncertainties surrounding climate change requires scenarios that cover impacts from changes in both average and extreme events, as well as adaptation policies.

Adaptation to climate change is an integral part of sustainable development and a necessity for advanced and developing economies alike. How can adaptation be planned for and mainstreamed into fiscal policy? Setting up inclusive coordination mechanisms and strengthening legal foundations to incorporate climate change can be a prerequisite. This Note identifies four 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.

Climate change is one of the greatest challenges facing policymakers worldwide, and the stakes are particularly high for Asia and the Pacific. This paper analyzes how fiscal policy can address challenges from climate change in Asia and the Pacific. It aims to answer how policymakers can best promote mitigation, adaptation, and the transition to a low-carbon economy, emphasizing the economic and social implications of reforms, potential policy trade-offs, and country circumstances. The recommendations are grounded in quantitative analysis using country-specific estimates, and granular household, industry, and firm-level data.

This chapter argues that governments need to scale up public investment to ensure successful reopening, boost growth, and prepare economies for the future. Low interest rates make borrowing to invest desirable. Countries that cannot access finance will, however, need to do more with less. The chapter explains how investment can be scaled up while preserving quality. Increasing public investment by 1 percent of GDP in advanced and emerging economies could create 7 million jobs directly, and more than 20 million jobs indirectly. Investments in healthcare, housing, digitalization, and the environment would lay the foundations for a more resilient and inclusive economy.

Haiti is one of the poorest and most unequal societies globally. This paper provides an overview of the current social context in Haiti and coverage and effectiveness of social safety nets. Existing social programs suffer from volatile financing and are fragmented, poorly targeted, and undermined by weak governance. As a new national policy on social protection and development is being prepared by the government, this paper builds on the literature and lessons from recent experiences to examine policy options to effectively reduce poverty and inequality. It argues in favor of a comprehensive strategy focused on a few quasi-universal cash transfer programs with simple demographic and/or geographic targeting. The programs must include systematic annual reports and be supported by a communications strategy and sustainable financing plans.

After close to two decades of strong economic activity, overall growth in sub-Saharan Africa decelerated markedly in 2015–16 as the largest economies experienced negative or flat growth. Regional growth started recovering in 2017, but the question remains of how trends in the economies stuck in low gear will spill over to the countries that have maintained robust growth. This note illuminates the discussion by identifying growth spillover channels. The focus is on trade, banking, financial, remittance, investment, fiscal, and security channels, which are the most prominent and most likely to transmit growth trends across borders. In addition to bringing together findings from a broad array of existing research, the note identifies countries that are the most likely sources of regional spillovers and those that are most likely to be impacted, and provides estimates for the size of these channels. It finds that intraregional trade and remittance flows are an important channel for growth spillovers, while banking channels are less important but will remain a risk going forward. Finally, the note documents other important spillover channels through financial markets contagion, revenue-sharing arrangements in fiscal unions, commodity-pricing policies, corporate investment, and forced migration. The main takeaway is that the level of interdependence among sub-Saharan countries is higher than is generally assumed. Consequently, there is a need for additional emphasis on regional surveillance and spillover analysis, along with traditional bilateral surveillance.