As The Bahamas and the wider Caribbean petition for fairer access to climate financing, the International Monetary Fund (IMF) in a new analysis said several factors, including high levels of government debt, data gaps, and a lack of effective carbon pricing, have contributed to lower climate financing in the region.
Prime Minister Philip Davis, as CARICOM (Caribbean Community) chairman, has advocated strongly over the duration of his chairmanship for the region to form a block to demand fairer climate financing.
Noting that the current level of private climate finance in the Caribbean region falls well short of what is needed, the IMF said addressing the aforementioned obstacles requires collaborative solutions.
"Governments need to strengthen the institutions and processes that develop, execute, and fund climate-related projects. These include green tagging of projects in budgets, accreditation to apply to climate finance, and upgrading procurement, transparency and reporting standards. To overcome constraints related to small size, Caribbean countries could pool administrative resources to reduce costs, while strengthening communication across departments involved in climate finance operations," the IMF authors said.
"Sustainable fiscal positions, supported by transparent and binding medium-term fiscal frameworks to signal commitment to debt sustainability, are critical to sustain access to climate finance at favorable terms.
"Governments could also facilitate access to private sector finance with the modernization of foreclosure procedures and accounting and reporting standards, and the establishment of credit bureaus. Given that social benefits will be larger than private benefits, governments should also remove bottlenecks at the sectoral level by adopting clear legal and regulatory
environments for renewable energy and eliminating fossil fuel subsidies, especially those for electricity production."
The Caribbean remains the most vulnerable region to climate-related shocks. However, compared to the rest of the world, has lagged in issuing sustainable debt, with the region issuing 0.5 percent of GDP (gross domestic product) compared to the world average of 1.6 percent of GDP.
"Financial markets that supply climate finance can simplify application processes, qualification requirements, and financial instruments, without weakening standards. Some options include establishing frameworks to pool applications of several countries and projects, making application requirements proportional to the amounts being requested. Climate finance instruments can be standardized to reduce appraisal cost and potentially facilitate the development of secondary markets for climate instruments," the IMF said.
"The IMF and other international financial institutions can give advice to help countries maintain fiscal sustainability and provide climate-specific technical assistance to develop administrative capacity, and climate data and diagnostic tools. The IMF also provides long-term concessional climate financing to strengthen the enabling environment, institutions and implementation capacity to address climate challenges and helps support private climate financing with the Resilience and Sustainability Facility. Multilateral development banks could play role in helping Caribbean countries with high levels of government debt to leverage equity financing from private sources."
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