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Dear MARIA, We just published a new blog—please find the full text below.   Explainer: How Asia Can Unlock $800 Billion of Climate Financing (Credit: Khoa Nguyen/iStock by Getty Images) By Ritu Basu and Cheng Hoon Lim Countries in the Asia-Pacific region face a shortfall of at least $800 billion in climate financing. With public finances depleted by the pandemic, policymakers must unlock the vast potential of private capital to join the fight more effectively against global warming. Doing so will demand a coordinated and multi-faceted approach by actors on all sides, from governments and central banks to financial supervisors and multilateral institutions. Important strategies include phasing out fossil-fuel subsidies, which have reached a record $1.3 trillion. It will also be key to expand carbon pricing, bridge critical data gaps, and promote innovative financing along with public-private partnerships. Here's an explainer based on our latest research, which draws on recent chapters of the Global Financial Stability Report on scaling up climate finance and other IMF studies on climate issues: Why is climate finance urgent? Progress is too slow. Global temperatures are set to surpass the critical 1.5 degrees Celsius threshold above pre-industrial levels. Efforts to halve 2019 levels of greenhouse gas emissions by 2030 fall alarmingly short, targeting only an 11 percent reduction. Without stronger action, our warming planet imperils homes, health, and food security. Mobilizing more climate finance is vital not only for mitigating emissions but to build adaptive capacity through investments in climate resilient infrastructure. This is especially important for Asia, which is home to several of the largest emitters and a region acutely vulnerable to climate change due to high population density and geography. What makes Asia’s role pivotal? The region’s transition to greater sustainability has global implications. Asia contributed about two-thirds of global growth last year, and will again in 2024, but its heavy reliance on burning coal for energy means that it contributes more than half of harmful global greenhouse gas emissions. Asia’s economies recognize how climate hazards directly impact lives and livelihoods, and have made deeper commitments, as their revised Nationally Determined Contributions under the 2015 Paris Agreement show. Asia can aid the climate fight by demonstrating how to balance economic growth and environmental sustainability. How significant is the funding gap? Asia’s emerging market and developing economies need investment of at least $1.1 trillion annually to meet mitigation and adaptation needs. But they’re only getting $333 billion, mostly from sustainable debt instruments like green bonds, and public sources contribute more than half. Such a shortfall leaves these economies with a funding gap of at least $815 billion. China leads in attracting climate finance, making major strides in renewable energy adoption, and its collaborations with the EU have yielded crucial frameworks for sustainable finance, such as the Common Ground Taxonomy and stricter China Green Bond Principles. What are the biggest challenges? Pacific island countries and other small economies often have trouble accessing international capital markets or obtaining financing via global climate funds. In particular, they find it hard to meet stringent accreditation requirements of global climate funds as their capacity is already stretched thin and public investment management is challenging. For larger countries, green bonds may be as costly as conventional securities because investors appear to be less trusting of green characteristics in Asia’s sustainable debt instruments. These issues underscore the broader challenges for the region’s funding aspirations. What do countries say? A survey of 19 countries in Asia revealed important gaps in data, disclosures, and taxonomies, and that these are exacerbated by inconsistent national climate policies that can promote fossil fuel subsidies. These deficiencies undermine investor confidence in forward-looking targets and transition. Greenwashing also is a risk, respondents say, because it can call into question the legitimacy of environmental claims made by bond issuers. In addition, increasing geoeconomic fragmentation, including friend-shoring and fraying global supply chains, could threaten cooperative and collective action to contain climate change. Action to unlock much more climate finance requires coordination among agencies overseeing climate initiatives, plus collaboration between local and global entities: How can Asia’s governments help? One way will be to comprehensively enhance the framework on data, taxonomies, and disclosures. They should phase out fossil fuel subsidies and expand carbon pricing, which would generate revenue for sustainable public investment. This would help boost investment in green technology, jobs, and growth, while supporting vulnerable households. Measures that strengthen macroeconomic and public investment management will help reduce risk premiums and funding costs, drive economic growth, and attract private capital. Where do central banks and financial supervisors fit in? They should promote global standards for transparent and consistent disclosures, while strengthening climate risk analyses and incorporating climate-related financial risks into prudential frameworks to enhance financial stability. Lastly, collaborating with multilateral standard setters to develop internal capacity is crucial for improving the clarity and reliability of ESG score ratings, fostering greater trust and understanding in these evaluations. What is the IMF’s role? The Fund is working with member countries to better detail climate-related economic risks and policies in surveillance and lending activities. The IMF also is strengthening data and statistics, including through capacity building and peer learning, to develop common standards for measuring and analyzing climate risk. Finally, our Resilience and Sustainability Trust can help vulnerable low- and middle-income countries catalyze financing from other sources by restoring sound macroeconomic management and building the institutional capacity of the public sector. Other multilateral organizations can provide more grant financing and concessional lending, and risk-mitigating mechanisms can help expand their lending capacity. Cooperation among multilateral institutions is essential to align efforts and resources to achieve a balanced allocation between mitigation and adaptation lending. —This blog reflects research by Cheng Hoon Lim, Ritu Basu, Yan Carriere-Swallow, Ken Kashiwase, Mahmut Kutlukaya, Mike Li, Ehraz Refayet, Dulani Seneviratne, Mouhamadou Sy, and Ruihua Yang. Jeff Kearns Managing Editor IMF Blog jkearns@IMF.org

Ghana Ghana: Transforming a Crisis into a Journey Toward Prosperity Photo Credit: mtcurado/iStock by Getty Images When Ghana requested an IMF-supported program in July 2022, the country was dealing with an economic and financial crisis that was the outcome of preexisting vulnerabilities and substantial external shocks. The authorities have since made compelling progress under the program that was approved by the IMF Board in May 2023. Two years ago, elevated fiscal deficits and public debt levels, together with the combined effects of the COVID-19 pandemic, Russia’s war in Ukraine, and global monetary policy tightening, triggered a drop in international investor confidence in Ghana, resulting in a loss of international market access. This generated increasing pressures on domestic financing, with the government turning to monetary financing by the central bank, which fed into declining international reserves, currency depreciation, and accelerating inflation. Now, the Ghanaian economy is showing signs of stabilization thanks to the authorities’ steadfast implementation of its IMF-supported economic program, which aims to restore macroeconomic stability, secure debt sustainability, and lay the foundations for higher and more inclusive growth.    Policy and reform commitment under the program The Ghanaian authorities have been taking bold steps to restore macroeconomic stability, including through their budgets for 2023 and 2024 which emphasize fiscal consolidation and sound public finances. These efforts are underpinned by structural reforms aimed to enhance domestic resource mobilization, strengthen public financial management, and create a business environment that better fosters private sector development. This is all geared toward securing durable macroeconomic stability, catalyzing growth, and ensuring a fairer distribution of its rewards among Ghana’s people. Alongside this, the Bank of Ghana has appropriately increased interest rates and eliminated monetary financing of the budget. Although inflation remains high, it is headed in the right direction: down to 23 percent in December 2023 from a record high of 54 percent in December 2022. The Bank of Ghana is determined to maintain policies that will continue to bring inflation down to levels consistent with their inflation targeting framework. The authorities have also designed a solid plan to ensure financial sector stability. While the authorities’ fiscal efforts will be instrumental in ensuring long-term debt sustainability, the government also launched a comprehensive debt restructuring operation in December 2022. This includes a domestic debt voluntary exchange, which has been successfully concluded, and two external debt operations, one with official bilateral creditors and the other with commercial creditors. Under the G20’s Common Framework, the Ghanaian authorities have recently reached agreement in principle with their official creditors on a debt treatment consistent with the program parameters. They are also engaging their external commercial creditors to seek their support. Turning the corner: early signs of stabilization Performance under the program has so far been compelling, with signs of stabilization emerging and the economy turning the corner. Despite a difficult global economic environment, growth in 2023 has shown resilience. Alongside this and the significant decline in inflation, the currency has recovered from its sharp depreciation (by 45 percent vis-à-vis the US dollar) at end-2022 and has been less volatile, with international reserves increasing. This is thanks to steadfast policy implementation around aligning the budget with the program, meeting program targets (especially net international reserve accumulation and primary fiscal balance), and carrying out key structural reforms, especially in the financial and the energy sectors. The social dimension: efforts to protect the vulnerable In undertaking bold reforms to overcome an economic crisis, it is crucial to safeguard vulnerable people, and the Ghanaian authorities are working hard to expand the most effective social protection programs. In 2023, they doubled the benefits under the existing targeted cash transfer program, the Living Empowerment Against Poverty, and these benefits are expected to be doubled again in 2024, increasing the benefit coverage from about 6 percent to 12 percent (of household pre-transfer consumption)—and helping to significantly reduce poverty and inequality. In the education sector, allocations toward the Ghana School Feeding Program and the Capitation Grant also received a boost. And, in the health sector, the authorities have expanded the allocation to the National Health Insurance Authority by over 40 percent to cover medical claims, essential medicines, and vaccines for the most vulnerable. These are critical interventions to protect the vulnerable which are regularly monitored under the IMF-supported program. The path forward Looking ahead it is important for Ghana to lock in the gains so far and continue steadfast implementation of the program, despite challenges associated with potential external shocks and the political environment in the run-up to the 2024 Presidential and parliamentary elections. Sound policies are expected to foster the recovery, bringing economic growth back to long-term potential and protecting the vulnerable, while inflation is projected to decline further. And fiscal consolidation and the completion of the debt restructuring operations would ensure that public debt is brought back to a sustainable trajectory. If the authorities continue to implement their package of policies and reforms with the commitment and drive demonstrated so far, sustained implementation of the program promises to bring a brighter future to all Ghanaians. **** Leandro Medina is the IMF Resident Representative in Ghana. RELATED LINKS Ghana and the IMF Regional Economic Outlook How to Ease Rising External Debt Service Pressures in Low-Income Countries