INTEGRATING CLIMATE ADAPTATION AND NATURAL CAPITAL INTO MACROECONOMIC FRAMEWORKS AND DEBT SUSTAINABILITY

24th September,2024 Download

Many emerging markets and developing economies (EMDEs) are on the frontlines of climate change and nature loss, suffering disproportionately from extreme weather and degraded ecosystems. Over the last 20 years, these countries have lost a staggering $525 billion to extreme weather events — about 20% of their combined GDP. The destruction of nature undermines essential ecosystem services like agriculture, storm protection, and carbon capture, which are critical for human wellbeing.

This paper highlights that climate change and nature loss have macroeconomic implications.

It argues that – while the IMF is starting to pay greater attention to climate change, including in its baseline GDP growth forecasts and the Debt Sustainability Analysis (DSA) – the world’s premier macroeconomic institution can adopt a more comprehensive approach to these issues.

The IMF must systematically assess  the implications of climate and nature risks, as well as investments in resilience, for all countries – this includes market-access countries, many of which are just as climate-vulnerable as low-income countries.

It must recognise that investment in natural capital is a critical adaptation strategy – particularly for nature-rich EMDEs that can substitute nature-based solutions for more costly physical infrastructure (e.g. mangroves for storm protection instead of concrete seawalls).

This isn’t just about getting the technical details right; it’s about climate justice. As called for by the Bridgetown Initiative, EMDEs must not be punished for the higher climate risks that some bear. The IMF must acknowledge the disproportionate impact faced by vulnerable countries and support more financing on better terms, enabling these countries to build resilience without adding to unsustainable debt burdens. It is time for macroeconomics to fully embrace climate science. Climate adaptation must be a priority not only for environment ministers but also for finance ministers.

Similar Publications

21st May, 2025

Systemiq report explores how Europe can scale polyester textile recycling tenfold by 2035 through policy action, investment and innovation.

15th May, 2025

Europe is at crossroads. The health of our ocean is at peril, climate change consequences are increasingly manifesting, inequalities are on the rise, the economic future is uncertain. At the…

15th May, 2025

The time is right to invest in a sustainable and booming European seaweed industry. The global seaweed market has more than tripled between 2000 and 2018, reaching 32.4 million tonnes…

 
Divider

Sign up for systemiq updates

News about our projects and insights from our experts.








    I’m also interested in