Jakarta – The International Monetary Fund (IMF) should re-evaluate ‘green fiscal consolidation’ measures and acknowledge the link of that approach to underdevelopment and low investment levels, the Task Force on Climate, Development and the IMF said Tuesday (5/4).
The task force, a consortium of experts from around the world, advising the IMF on development-centred approaches to climate change, offers four recommendations on the fiscal implications of transitions to net zero.
“Structural transformation towards a net-zero economy requires large levels of investment globally, at a time when many countries are already facing fiscal pressures,” the task force said in a policy brief.
The task force said that “the revenue raised from carbon pricing, which has proven to be politically difficult to enact, may be insufficient to finance or incentivize the low-carbon transition.”
The policy brief summarises three technical papers from task force members on the fiscal implications of transitions to net zero due to the significant impacts on countries’ fiscal positions and implications for debt sustainability.
The first paper analyses how India’s transition to net zero will impact the country’s current revenue from fossil fuel related taxes and duties. A study from Latin America and the Caribbean highlights the fiscal challenges of six major hydrocarbon producers in the region and the Boston University Global Development Policy Center experiment with incorporating fiscal impacts of both physical and transition risks into current IMF models for Debt Sustainability Analyses (DSAs) for two countries, Colombia and Peru.
Other key policy recommendations are for the IMF to expand country-specific data on resource mobilisation needs, economic impacts of risks of green investment; help member states make a stepwise increase in investment for inclusive, resilient and low-carbon economies, particularly in carbon-intensive countries; and tailor advice to support reforms that increase tax revenue and improve tax structure, favouring progressive tax instruments.
The task force said, the IMF “with its mandate to maintain the stability of the international financial system, has a key role to play in helping countries innovate to improve domestic resource mobilisation and access to quality external financing.” (nsh)
