Enabling adaptation: sustainable fiscal policies for climate resilient development and infrastructure

Many countries around the world are grappling with the same conundrum how to reach a
level of economic activity that can support the needs of a growing population and achieve the
sustainable development goals (SDGs), while tackling the triple challenges of adapting to an
already changing climate (WMO, 2024), abating greenhouse gas emissions (Smith et al., 2024,
2023), and avoiding environmental degradation and biodiversity loss (Brondizio et al., 2019;
Ceballos & Ehrlich, 2018; Malanoski et al., 2024). These challenges are particularly acute in
many developing economies, facing some of the highest risks from climate change, fiscal
constraints (or debt distress in some cases), an urgent need for infrastructure investment to
power development, and a challenging macroeconomic environment for investment (Holland
& Pazarbasioglu, 2024; UNDP, 2023).
This report takes the form of a compendium of key fiscal considerations for climate resilience
development, with a focus on infrastructure. Infrastructure – grey, green, blue and hybrid –sits at the heart of the challenges noted above and is an area where public finance and public policy must play a critical role both in mobilizing investment (public and private) and ensuring long-term resilience. These considerations are large topics, and we can only provide initial insights here as a primer for further research and action. We consider five areas:

1. The synergies between debt sustainability and adaptation, and the needs and
   opportunities to change our approach to debt sustainability analysis to reflect this
2. The alignment of public expenditure and climate resilience goals
3. Blended finance and its role in mobilising private investment in adaptation
4. Aligning fiscal policy and wider public policy to mobilise investment in ways that are
   consistent with adaptation and nature goals
5. Investing in data as a public good to catalyse resilient investment
   

The report addresses each topic through a combination of literature review, case studies and
new analyses. We draw upon three country case studies in particular (a low income African
economy, an climate-vulnerable upper-middle income Asian economy and an upper-middle
income small-island state) as illustrations. While the analyses are preliminary, the paper
presents a set of initial recommendations for governments in each of the five areas.
The following section introduces the role of infrastructure at the heart of the nexus between
the SDGs and the triple challenges, and the links to government fiscal policy. The subsequent
sections then address the five focus areas in turn. The final section concludes with a view to
further research needs, particularly to inform future directions of promising developments:
sustainability linked sovereign debt for adaptation and adaptation taxonomies.

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