Climate change is having negative impacts on both fiscal and monetary policy in Africa. The combined macroeconomic effects of climate change could lower the continent’s gross domestic product (GDP) by up to 3 percent by 2050.
The fiscal effects being borne by African governments fall into two main categories:
Lost fiscal strength and space (i.e., lost revenue growth, negative impacts on productive debt, lower exports, etc.) due to the macroeconomic and sectoral effects of climate change.
Increases in planned and unplanned expenditure to address climate-related disasters and chronic climate change effects.
Climate change is hitting all three arms of fiscal space in Africa, for example:
Revenue: Extreme weather events and droughts lower export earnings from export of agricultural commodities, lower dollar earnings, lower revenues from firm and activities in the agriculture sector etc.
Expenditure: Increased expenditure on food imports, worsening trade deficit and CAD due to increased food imports during drought, repair of infrastructure damaged by flash floods and extreme weather events
Debt: Lower repayment capabilities in local currency and USD, lower productive potential of infrastructure investments damaged by extreme weather events.
Anzetse Were joins the Co-Chairs of the Debt Relief for a Green Recovery (DRGR) Project to launch a new DRGR report that analyzes the level and composition of public and private external sovereign debt for EMDEs, and outlines the scale of debt relief and restructuring required. She shares her insights on the impact climate change is having on debt sustainability in Africa and the need to create an environment of fairness where African governments can be honest about the impact climate change is having on debt sustainability and still be treated fairly. She also provides insights on how to reform global financial architecture in a manner that address both the debt and climate crises.
Read the article in the Financial Times on the DRGR proposal.