Finance is crucial for recovery and long-term transformation but will be more challenging in the post-COVID environment. Recovery packages will be set in a difficult macro-fiscal context where fiscal expansion is necessary but severely constrained in many countries. Emerging markets and developing countries will face an extremely challenging situation where all sources of finance will be more constrained. Many will likely face debt difficulties and heightened vulnerabilities. Countries will need to find ways to create fiscal space and unlock finance for the best growth and job enhancing investments available to them. They will also need to anticipate the substantial investments needed to drive the transformation to a low carbon climate-resilient economy.
As such it will be critical to mobilise all pools of finance and utilise them more effectively. This includes strengthening domestic public finance foundations, bolstering and making more effective use of international climate finance, and enhancing the role of international and national development banks. A range of climate finance instruments and other options are emerging, including debt for nature swaps, that can be scaled up through international collaboration, helping countries unlock fiscal space. It will also be crucial to augment substantially the mobilisation of private finance and align all finance with the Paris Agreement and Sustainable Development Goals (SDGs). This will involve working with The Network of Central Banks and Supervisors for Greening the Financial System (NGFS) and others to shift the financial system, through the three Rs set out in the work of Mark Carney and his team: reporting, risk management and returns.
This paper was prepared at the request of the co-chairs of the Coalition of Finance Ministers for Climate Action (‘the Coalition’). The co-chairs “invited Nicholas Stern and Amar Bhattacharya, advisors of the cochairs, with input from the IMF, the OECD, the WB and WRI, to prepare a paper on the implications of the Coronavirus on recovery and long-term growth strategies from the finance ministers angle.” The paper has benefitted from feedback from Coalition members and other institutional partners. This paper provides the guidance and the tools to help finance ministers to act now to design clear recovery strategies for delivering strong, timely and productive green investment programmes and projects. These projects can contribute to climate change mitigation and adaptation, and can lead to more inclusive, resilient and sustainable growth.
To promote a green and socially just recovery worldwide, public debt problems need to be urgently addressed to enable all governments to have the fiscal space to finance key health and social spending and invest in a green, resilient and inclusive recovery.