IMF suggests fiscally sustainable investment plans to address climate change

Published : 27 Oct 2021 08:14 PM | Updated : 30 Oct 2021 08:51 AM

To address the impact of climate change, the  International Monetary Fund (IMF) has laid emphasis on carefully costed and  fiscally sustainable investment plans for Bangladesh to attract donor  finance.

  "As the climate financing needs are large, a combination of domestic and external funding (financed in large part with donor support) is needed. While  climate change is being covered in all recent long-term national plans,  Bangladesh seems to have limited fiscal space-especially post-COVID-19-making  it challenging to accommodate large scale and costly climate resilient  investment. Carefully costed and fiscally sustainable investment plans are  needed to attract donor finance," said IMF's Mission Chief for Bangladesh  Rahul Anand through an email interview.

Being one of the most climate-vulnerable countries, Bangladesh has taken  several steps to mitigate the impact of climate change, a key risk to future  growth, including launching a US$200 million Green Transformation Fund (GTF)  to provide low-rate long-term financing for purchases of more efficient,  cleaner machinery and equipment in all exports sectors, he mentioned. 

"Bangladesh Bank (BB) issued Policy Guidelines for Green Banking for banks  in 2011 and Non-Bank Financial Institutions in 2013, which covered the  formulation of green banking policy, governance and the creation of a Climate  Risk Fund (CRF) in every financial institution," he added.

At less than 10 percent, he noted that Bangladesh's tax revenue-to-GDP  ratio remains low, constraining the government's ability to increase spending  on resilient infrastructure, as well as reducing loss and damage by adapting  the infrastructure to climate change. 

Therefore, he said, improving revenue collection-by expanding the tax base  and modernizing tax administration-remains a priority.

Transitioning to more risk-based credit evaluation, he said, lending and  supervision will help to strengthen the financial landscape to channel  climate financing. Reform priorities include strengthening banking regulation  and supervision, improving corporate governance and reforming legal systems. 

Rahul Anand said the authorities are amending several laws and acts to  strengthen the financial sector, and it will be important to align them with  best international practices. 

"Reforms to improve the business environment and deepen capital markets  will be critical to attract Foreign Direct Investment (FDI) and debt  financing," he continued. 

He said the NSC pricing reforms would help to develop the government bond  market and early implementation of carbon taxation slated for FY25 in the  eighth five-year plan, could leverage private finance by signaling environmental commitments.

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