Governments set environmental policies but are not required to pay for investments.

The authors of the IMF’s financial stability report argue that governments should set policy but should not pay for investment, paving the way for private sector deepening in developing countries.

“Governments should set economic, environmental and infrastructure investment policies, but they do not necessarily have to pay for the investments needed to implement these policies,” says economist Ruud de Mougi, one of the authors of the report on global financial stability, the third chapter of which will be published in this Monday.

At a press conference to launch the chapter ahead of next week’s annual meetings of the International Monetary Fund (IMF and World Bank) in Marrakesh, the economist said the private sector “has a much larger role to play” in financing the energy transition and economic development.

“Balancing this ‘trilemma’ of achieving climate goals, ensuring financial sustainability and ensuring policy feasibility is difficult, but coordination among countries makes it easier, and regional and international cooperation is key to achieving progress in this area,” said the press economist. conference at which the third chapter of the report will be presented.

Focusing on the energy transition, the document “quantifies financing needs and looks at which policies can guarantee the necessary funds and from where,” added economist Fabio Natalucci, another of the report’s authors.

The IMF report says an additional $2 billion (about €1.8 billion) in private investment is needed each year until 2030 to try to meet sustainable development goals, but warns that current values ​​are much lower. than this.

“Climate investment must quadruple from the current level of 3% to 12%,” he added, recalling that most developing countries’ fiscal margins have been shrinking due to the successive shocks they have faced since the end of the last decade. due to falling commodity prices, then the pandemic, and now rising inflation and shortages of grains needed for agriculture, which is still the largest source of livelihood in sub-Saharan Africa.

“While projected debt growth is the same in advanced and emerging economies due to environmental policy packages, the contribution of different revenue sources and spending measures is quite different because debt levels are associated with greater carbon emissions potential. income and higher investment needs and higher debt costs,” the economists wrote in a blog accompanying the release of Chapter Three.

“Relying heavily on spending measures and their expansion to achieve climate ambitions will become increasingly costly, possibly leading to debt rising by 45–50% of gross domestic product (GDP) by mid-century,” the IMF warns, noting that this is particularly problematic. for EMDE countries that already face high levels of debt and significant financing costs.

“To cope with these challenges, governments must improve fiscal efficiency and create greater capacity to increase tax revenues, expand the tax base and improve financial institutions,” the economists conclude.