Enhancing Resilience to Climate Change in the Maldives

IMF Working Papers, April 23, 2021

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The increased likelihood of adverse climate-change-related shocks calls for building resilient infrastructure in the Maldives.
Fulfilling infrastructure needs requires comprehensive analysis of investment plans with respect to:
- degree of climate resilience,
- impact on future economic prospects,
- funding costs and sources.
The paper analyzes these challenges by calibrating a general equilibrium model.
Main quantitative finding: under worsened climate conditions, the cumulative output gain from investing in more resilient technologies increases up to a factor of two.
Fiscal constraint note: the Maldives has limited fiscal space, particularly after COVID-19.
Donor timing finding: it is financially convenient for donors to help build resilience prior to the occurrence of natural disasters rather than helping finance reconstruction ex-post.

Significant dividend associated with building resilient infrastructure.
Under worsened climate conditions, the cumulative output gain from resilient investment increases up to a factor of two.
Given limited fiscal space after COVID-19, domestic financing alone may be insufficient to meet resilience needs.
International community cooperation should be stepped up to support resilience-building.
Donor financing before disasters is more cost-effective than ex-post reconstruction financing.

Analytical approach: calibration of a general equilibrium model to the Maldives context.
Focus areas: investment plans’ resilience, macroeconomic impacts, and funding costs and sources.

Prioritize investment in resilient infrastructure to capture substantial cumulative output gains (up to a factor of two under worsened climate conditions).
Mobilize international cooperation and donor support, recognizing the Maldives’ limited fiscal space after COVID-19.
Encourage donor financing for resilience-building ex-ante (prior to disasters) rather than ex-post reconstruction financing.