How the Middle East and Central Asia Can Better Address Climate Challenges

IMF Blog, November 29, 2023

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Authors: Jihad Azour, Hasan Dudu, Ling Zhu
Published: November 29, 2023

Climate reality and economic impacts

Temperatures in the Middle East and Central Asia have risen twice as fast as the global average.
Rainfall has become scarcer and less predictable.
Fragile and conflict-affected states suffer disproportionally; they experience four times higher output losses after climate-related weather shocks.
Recent extreme events cited include floods in Libya and Pakistan, drought in Somalia, record temperatures and heatwaves, depleted rivers, and violent coastal storms.
Past climate disasters have resulted in permanent gross domestic product losses of 5.5 percent in Central Asia and 1.1 percent in the Middle East and North Africa.
Climate effects undermine food security, public health, and have ripple effects on poverty, inequality, displacement, political stability, and conflict.

Global commitments gap and timing

Current global commitments would reduce emissions by just 11 percent by the end of this decade, well short of the 25 percent to 50 percent that’s needed to meet the goals of the Paris Agreement.
COP28 is presented as a timely forum to discuss policies needed to avert more disruptive climate change.

Investment and financing needs

Investment of up to 4 percent of GDP annually is needed to sufficiently boost climate resilience and meet 2030 emissions reduction targets.
Attracting more private finance is crucial amid higher borrowing costs and constrained government spending.
Policy measures that could mobilize finance include accelerated fuel-subsidy reform, carbon taxes, and other climate regulations to provide clearer signals to investors.
The IMF’s Resilience and Sustainability Facility (RSF) is highlighted as helping address climate vulnerabilities; an example is the $1.3 billion RSF climate program with Morocco.

Mitigation and adaptation actions taken and potential

Examples of national actions:
- Morocco, Jordan, and Tunisia: improved water management practices to enhance resilience amid prolonged droughts.
- Jordan: fossil-fuel subsidy reforms.
- United Arab Emirates and Qatar: solar power projects.
- Saudi Arabia: development of the world’s largest solar power plant led by its sovereign wealth fund.
IMF research indicates fiscal policies can help countries in the region cut per capita greenhouse gas emissions by up to 7 percent by 2030 and accelerate policies further to achieve net-zero emissions by 2050.

Policy priorities and recommendations

Frontload action on both adaptation and mitigation; governments must step up goals to adapt and to reduce their contribution to global warming.
Prioritize “no regret” investments such as:
- Climate-resilient infrastructure and agriculture
- Disaster risk management
- Social protection
Use a mix of policies to manage trade-offs between short-term transition costs and long-term efficiency:
- Recognize that reducing fuel subsidies or putting a price on carbon may raise near-term transition costs.
- Understand that boosting renewable energy through additional government spending and subsidies can increase near-term take-up but may be less economically efficient than carbon pricing.
Expand and reinforce existing adaptation and mitigation policies rather than relying on piecemeal measures.
Mobilize more multilateral support to:
- Spark action where needed most
- Transfer technical knowledge and policy experience
- Catalyze other funding sources, particularly for low- and lower-middle income countries

Role of multilateral and regional initiatives

Global and regional initiatives such as COP28 are instrumental to:
- Foster cross-border collaboration
- Promote private sector climate finance
- Secure additional climate funding for the most vulnerable countries

Jihad Azour, Hasan Dudu, Ling Zhu — November 29, 2023

References

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Resilience and Sustainability Facility