Political Science > Environmental Policy

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International Monetary Fund. African Dept.
Kenya is confronted with the need to chart a course that attends directly to the recent public outcry. The widespread protests that started in June and resulted in tragic loss of lives and injuries were triggered by the authorities’ efforts to correct a large tax revenue shortfall in FY2023/24 through revenue raising proposals in the 2024 Finance Bill, some of which were unpopular or seen as regressive. The protests forced the President to withdraw the Bill, introduce significant spending cuts through a Supplementary Budget in July, and reconstitute the Cabinet in August. Persistent difficulties in mobilizing revenue coupled with spending rigidities have led to a further accumulation of pending bills, and necessitated deep cuts in development spending, with potential for knock-on effects on growth and debt sustainability. Against this backdrop, preceded by large exogenous shocks (COVID-19, global developments impacting import price and affordable access to market finance, and severe multi-season droughts), the authorities face a complex and difficult balancing act: meeting critical spending needs for priority areas (social programs, health, and education), servicing large upcoming debt obligations, and boosting domestic revenues. Earlier in the year, Kenya addressed the exceptional balance of payments (BoP) needs associated with repayment of the June 2024 US$2 billion Eurobond, boosting market confidence that helped strengthen the shilling and build reserves. Meanwhile, fiscal pressures continue, including from uncertainty surrounding the constitutionality of the 2023 Finance Act on which the Supreme Court’s decision is awaited.
Serhan Cevik
Lithuania’s immediate fiscal challenges are national security and higher costs of borrowing, but fiscal prospects are further exacerbated by long-term pressures stemming from climate change and a shrinking and aging population. The country has experienced a rapidly decreasing population—from 3.7 million in 1991 to 2.8 million in 2023—and its old-age dependency ratio is consequently expected to increase from 33 percent in 2023 to 53.4 percent by 2050. The resulting long-term spending pressures are projected to amount to as much as 11.2 percent of GDP, which is about 30 percent of the current level of spending. Debt sustainability concerns would not allow financing additional spending with more debt. Hence, a comprehensive strategy will help address these long-term fiscal challenges, including tax policy changes to raise additional revenue while primarily reducing expenditure needs through pension and healthcare reforms.
International Monetary Fund. African Dept.
This paper presents United Republic of Tanzania’s Third Review under the Extended Credit Facility Arrangement, Request for Extension of the Extended Credit Facility (ECF) Arrangement and Rephasing of Access, and Request for an Arrangement under the Resilience and Sustainability Facility. The ongoing growth-friendly fiscal consolidation will help buttress fiscal and debt sustainability. Efforts should be geared toward enhancing domestic revenue mobilization and strengthening cash management and commitment controls. Strengthening public financial and investment management will help contain fiscal risks and improve the efficiency of public investment. Performance under Tanzania’s economic reform program supported by the ECF remained strong. The authorities are committed to continue implementing reforms to preserve macro-financial stability, strengthen the economic recovery, and promote sustainable and inclusive growth. Structural reforms are essential to promote inclusive, resilient, and sustainable growth. Business reforms should focus on streamlining bureaucratic procedures, simplifying the regulatory regime, and enhancing regulatory transparency. Implementation and enforcement of the authorities’ anti-corruption legislation and strategies is central to enhancing governance.
Daniel Garcia-Macia, Waikei R Lam, and Anh D. M. Nguyen
Managing the climate transition presents policymakers with a tradeoff between achieving climate goals, fiscal sustainability, and political feasibility, which calls for a fiscal balancing act with the right mix of policies. This paper develops a tractable dynamic general equilibrium model to quantify the fiscal impacts of various climate policy packages aimed at reaching net zero emissions by mid-century. Our simulations show that relying primarily on spending measures to deliver on climate ambitions will be costly, possibly raising debt by 45-50 percent of GDP by 2050. However, a balanced mix of carbon-pricing and spending-based policies can deliver on net zero with a much smaller fiscal cost, limiting the increase in public debt to 10-15 percent of GDP by 2050. Carbon pricing is central not only as an effective tool for emissions reduction but also as a revenue source. Delaying carbon pricing action could increase costs, especially if less effective measures are scaled up to meet climate targets. Technology spillovers can reduce the costs but bottlenecks in green investment could unwind the gains and slow the transition.
International Monetary Fund. African Dept.
This paper presents Cameroon’s Request for an Arrangement under the Resilience and Sustainability Facility (RSF). Climate change presents substantial risks for Cameroon. Climate change poses an imminent threat to livelihoods and could result in significant output losses, while worsening food insecurity and conflicts, and exacerbating poverty, inequality, and population displacements. This underscores the need to strengthen the country’s preparedness and resilience to ensure that climate change impact does not jeopardize human capital accumulation or inclusive growth. The three-year upper credit tranche (UCT) arrangements under the Extended Credit Facility and the Extended Fund Facility approved in July 2021 remain on track. While an arrangement under the RSF is normally approved concurrently with the UCT review, the standalone RSF request allowed time to further strengthen proposed reform measures, providing the necessary policy safeguards for RSF financing. The RSF will provide timely support for the climate reform momentum ahead of the 2025 elections and sustain the growing engagement with multiple stakeholders and donors on complementary actions.
International Monetary Fund. African Dept.
Les changements climatiques présentent des risques considérables pour le Cameroun. Le Cameroun est non seulement la première économie de la CEMAC, avec un fort potentiel économique et des ressources naturelles abondantes, mais il abrite aussi de larges pans de la forêt tropicale du bassin du Congo, la deuxième forêt tropicale du monde. Cependant, c’est aussi un pays fragile et en conflit (PFC) qui présente un ensemble de fragilités, notamment une forte vulnérabilité aux changements climatiques. Les risques climatiques s’intensifient dans le pays, avec une élévation progressive des températures, une augmentation prévisionnelle du nombre de jours de fortes précipitations et une fréquence accrue des phénomènes météorologiques extrêmes tels que les sécheresses, les glissements de terrain et les inondations. Les changements climatiques sont une menace imminente pour les moyens d’existence de la population et pourraient entraîner d’importantes pertes de production tout en aggravant les risques d’insécurité alimentaire et de conflits, et en accentuant la pauvreté, les inégalités et les déplacements de population. Cela souligne la nécessité de renforcer l’état de préparation et la résilience du pays afin que les effets des changements climatiques ne compromettent pas l’accumulation de capital humain ou la croissance inclusive.
Armand P Fouejieu
Moldova is more vulnerable to climate change than the rest of Europe, due to its (i) higher sensitivity to changes in climate conditions (reflecting its heavier reliance on agriculture, a comparatively-larger rural population, high dependence on energy imports and limited diversification of energy supply sources, and limited financial resources to provide high-quality public services); and (ii) weaker adaptative capacity to climate shocks (due to its comparatively weaker disaster preparedness strategy, low adaptation in the agriculture sector and poorer quality of infrastructure). Adaptation investments can substantially reduce output losses caused by natural disasters, are more cost-efficient than responding to disasters ex-post, and can contribute to boost Moldova’s long-term economic growth and support its development objectives.
International Monetary Fund. African Dept.
The Senegalese economy continues to face headwinds. Despite the difficult socioeconomic environment, the authorities remain committed to the program objectives. Some of the downside risks identified at the time of the program request have materialized, leading to a downward revision of near-term growth. Inflation is projected to decline more gradually than anticipated. While near-term risks remain titled to the downside, with appropriate policies and the start of hydrocarbon production, medium-term prospects are favorable.
International Monetary Fund. Western Hemisphere Dept.
This paper presents Paraguay’s Second Review under the Policy Coordination Instrument, Request for an Extension of the Policy Coordination Instrument, Modification of Targets, Inflation Band Consultation, and Request of Arrangement under the Resilience and Sustainability Facility (RSF). The government is committed to continued prudent macroeconomic policies and the implementation of structural reforms, including a series of adaptation and mitigation measures and to preserve and expand its green energy matrix. Barring global and weather-related external shocks, Paraguay’s growth prospects are bright. It remains important for Paraguay to rebuild fiscal buffers, including through implementation of long-standing structural reforms. The re-establishment of the fiscal deficit rule by 2026 is rightfully the government’s key priority. The authorities are committed to implementing an ambitious set of climate-related reforms consistent with maximum access under the RSF. The commitment to implement an ambitious matrix of climate-related reforms, closely coordinated with development partners, will help enhance the country’s image as a ‘green’ investment destination.