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Opening Remarks by Deputy Managing Director Tao Zhang at the 2019 Seminar on Climate Resilience for Small Islands States

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Via IMF (Den Internationale Valutafond)

Opening Remarks by Deputy Managing Director Tao Zhang at the 2019 Seminar on Climate Resilience for Small Islands States







December 4, 2019















Good morning ladies and gentlemen. It is my pleasure to welcome you to this important seminar on strengthening climate resilience and the role of public finance. Some of you have come from very far away, and we are pleased to have you here.

Changes in climate pose serious threats, particularly to low-lying island states that are at risk of rising sea levels and extreme weather events. We already see some signs. The last two decades have witnessed 18 of the 19 warmest years in history. Climate-related disasters, including hurricanes, cyclones and droughts, have been increasing in intensity and frequency. These disasters have caused massive humanitarian emergencies and economic damage and are expected to be more severe in the future as global warming continues.

The international community has recognized the threat posed by changes in our climate. Efforts to reduce greenhouse gas emissions through various mitigation measures have been taken, e.g., phasing out fossil fuels in favor of renewable energy or increasing energy efficiency. But the efforts are moving at a very slow pace. It is crucial that countries meet their commitments under the Paris Agreement. But even more efforts will be needed. The longer countries delay taking measures, the greater the cost of stabilizing global temperatures.

More importantly, mitigation policies will not be enough. Actions by countries to adapt and build up resilience are needed to safeguard people’s lives and economies in the face of intensified climate-related disasters.

This is especially true for your countries—island states in the Caribbean, Pacific, and Indian Ocean—which are particularly vulnerable to natural disasters and sea-level rise. Indeed, in the past, some disasters, such as Hurricane Irma in Dominica in 2017, have caused the equivalent of more than 200 percent of countries’ annual GDP in damage.

Today, I will focus on two aspect of resilience building, improvements to physical infrastructure and the financial architecture. Strong fiscal policies and effective fiscal institutions can set the foundation such resilience building.

Resilient physical infrastructure is one way to reduce the human and economic losses when countries are hit by disasters and to protect against rising sea levels. Studies have shown that gains from investment in resilient infrastructures, if managed properly, can easily outweigh their short-term costs.

However, in practice, investments in resilient physical infrastructures are lagging.

While the benefits from such investments will accrue over the long term, their upfront costs could be daunting for small island countries. For example, in Fiji, the World Bank has estimated that adapting to climate change and natural disasters requires physical investments of around 100 percent of GDP over the next 10 years. The average annual costs almost equal the current budgeted capital spending. Mobilizing tax revenue and raising financing from the private sector and donors can help meet these costs.

Strengthening resilience also requires improvement to the financial architecture to manage the financial costs of natural disasters. Since the impact of disasters cannot be fully eliminated, countries need to plan for addressing the fiscal and financial costs. A critical part of the plan is to develop a multipronged strategy for managing disaster costs.

This includes things such as:

  • Building up fiscal buffers;
  • Insuring critical public and private assets through disaster insurance funds; and
  • Arranging contingent financing.

But, strengthening climate resilience requires not only good fiscal policies. It needs robust fiscal institutions to effectively implement these policies and ensure that spending on resilient infrastructure is done wisely and efficiently.

Strong public investment management systems play a particular role. Strong institutions in this area can help improve the efficiency and effectiveness of public investment and get the most out of limited resources. They also give donors the assurance that their funds will be well used. This requires strengthening project selection and implementation to ensure effectiveness of resilience investments.

Many small island countries have been reforming their public financial management institutions and have made considerable progress. However, there is room to do more. For example, the climate change policy assessments, which are conducted jointly by the IMF, the World Bank, and their counterparts in small islands economies have found it challenging to link climate change policies to budget allocations—and difficult to track the spending on climate resilience.

 

Role of International Community and the IMF

Climate change is a global problem, but it is one that affects you—the small island states—disproportionately in potentially severe ways. The international community needs to play a strong role in helping your countries.

As I previously mentioned, the needs of resilient investments are huge and far beyond the small states’ own fiscal resources. As estimated by the UN Environment Programme, the costs of climate change adaptation in developing economies are currently estimated to range from $56 to73 billion, 2 to 3 times higher than currently available financing. These estimates rise to potentially as much as $140 to 300 billion by 2030.

We at the IMF are fully engaged in tackling climate change. I will be traveling to Madrid next week to attend the UN Climate Conference (COP25).Together with other development partners, we are continuing to help countries strengthen their resilience. We can support your efforts in multiple areas of resilience building, including policy advice, capacity development, and financial support. Some of our current efforts include:

  • Advising on macroeconomic policies integrating near-term natural disasters and longer-term climate risks.
  • Helping countries build capacity and strengthen public financial management and infrastructure governance. Our regional technical assistance centers, such as those for the Caribbean and Pacific, have played a pivotal role in this effort.
  • Together with the World Bank and other development partners, conducting more climate change policy assessments, or similar assessments, to assess country preparedness and identify needed reforms.
  • Supporting countries to develop a Disaster Resilience Strategy that covers structure resilience, financial resilience, and social resilience, of emphasizing other pre-and-post disaster efforts.
  • Assisting countries facing balance of payments needs when implementing their resilience-focused medium-term program, or when hit by natural disasters.

 

Conclusions

This three-day seminar provides a valuable platform for peer-to-peer learning among senior officials of finance ministries of small states. We are pleased to bring together under one roof Caribbean, Pacific, and Indian Ocean island states. You all face similar challenges, and sharing your experience will be very useful to your peer countries and to all of us.

The staff from various IMF departments, and representatives from other international financial institutions and donors will also provide their insights, experiences, and perspectives on resilience building.

I would like to express our appreciation to all participants for being here today. And of course, I would like to thank the Government of Japan for kindly funding this event under our infrastructure governance partnership.

I wish you all a very productive and successful seminar.

Thank you!









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