Inter-American Development Bank
facebook
twitter
youtube
linkedin
instagram
Abierto al públicoBeyond BordersCaribbean Development TrendsCiudades SosteniblesEnergía para el FuturoEnfoque EducaciónFactor TrabajoGente SaludableGestión fiscalGobernarteIdeas MatterIdeas que CuentanIdeaçãoImpactoIndustrias CreativasLa Maleta AbiertaMoviliblogMás Allá de las FronterasNegocios SosteniblesPrimeros PasosPuntos sobre la iSeguridad CiudadanaSostenibilidadVolvamos a la fuente¿Y si hablamos de igualdad?Home
Citizen Security and Justice Creative Industries Development Effectiveness Early Childhood Development Education Energy Envirnment. Climate Change and Safeguards Fiscal policy and management Gender and Diversity Health Labor and pensions Open Knowledge Public management Science, Technology and Innovation  Trade and Regional Integration Urban Development and Housing Water and Sanitation
  • Skip to main content
  • Skip to secondary menu
  • Skip to primary sidebar
  • Skip to footer

Gestión fiscal

  • HOME
  • CATEGORIES
    • Decentralization
    • Public Spending
    • Taxes
  • authors
  • Publications
  • English

Aligning Public Investments with Sustainable and Climate Goals

April 25, 2022 by Hiranya Mukhopadhyay - Hanif Rahemtulla - David Bloomgarden - Gerardo Reyes-Tagle Leave a Comment


Increasing disaster risks in developing countries call for strategic planning and investments in resilient and low-carbon infrastructure.

The tsunami that caused extensive destruction and loss of life in Tonga in January 2022 stressed the vulnerability of developing countries, especially small island developing states, to disasters triggered by natural hazards, such as earthquakes, floods, droughts, and tropical cyclones. Losses from damage to assets and disruption in services are estimated at $391 billion–$647 billion per year in these countries. Disaster risk is expected to increase with climate change. Poor and vulnerable populations face the biggest impacts.

Aside from service disruption and losses, the short- and medium-term climate and disaster impacts include increased operating costs, shorten the operating life span of the asset, and reduced economic benefits of infrastructure assets. In the longer term, this may impact credit ratings, thereby increasing borrowing costs and reducing the availability of insurance.

From a regulatory capital perspective, lending to riskier projects may in the future lead central banks to assign a higher risk weightage to these projects, further raising the financing costs. Although the coronavirus disease (COVID-19) has receded, research by both the Asian Development Bank and the Inter-American Development Bank suggest that the pandemic will continue to have lingering effects on growth and government revenue and debt. 

Governments must invest in reliable and resilient infrastructure or face repeated calamitous impacts. Public infrastructure investments that are not resilient will incur greater maintenance expense over their life cycle and may draw resources away from other productive capital investments. These call for a more strategic public investment management that can address the challenges of climate and disaster risks.

Requirements to achieving the SDGs

Achieving the Sustainable Development Goals (SDGs) and commitments made under the Paris Agreement on climate change and Sendai Framework for Disaster Risk Reduction requires governments and the private sector to mobilize significant additional infrastructure investments toward low-carbon and resilient development. Financing climate mitigation, adaptation, and disaster risk reduction will cost more and will need a rethinking of public investments.

Pre-pandemic estimates of the World Bank suggest that developing countries will need to invest around 4.5% of GDP annually through 2030 to meet the combined SDGs and Paris Agreement goals. Infrastructure investment in these countries will need to grow beyond pre-COVID levels to make up for past underinvestment and to make progress toward net-zero emissions and a resilient, green, and inclusive recovery.

Retrofitting existing infrastructure to make it more resilient usually costs more than the amount it will take to make it climate resilient during the design and construction phase. Evidence shows that the social and economic returns created by well-planned and managed public investment projects can exceed the actual development costs.  

The World Bank reported that the average net benefit of investing in more resilient infrastructure in developing countries is $4.2 trillion globally, with $4 in benefits for each $1 invested.

An International Monetary Fund (IMF) analysis shows that a 1% increase of GDP share in infrastructure spending can add 0.4% in annual economic growth or 1.5% over 4 years.

Likewise, clean energy infrastructure delivers high economic multipliers, is labor intensive, and can have higher returns than investments in energy from fossil fuels if the benefits and costs include the accounting of environmental impact.  

Why public investment management must be reformed

To meet the large financing requirements for sustainable infrastructure, countries must strengthen their capacity to raise and manage resources from all sources. Public investment management is an approach that helps governments strategically manage these resources and efficiently invests them to public infrastructures in various sectors, such as power, transport, and health.

However, climate change and disaster risks present additional challenges for government in ensuring appropriate and resilient public spending. Public investment management practices must be reformed to meet these challenges. Proper planning and design can help avoid losses especially if adequate fiscal resources are allocated to the right sectors and projects based on a robust understanding of the climate and disaster risk context. Likewise, efforts or programs that help drive low-carbon investments, such as reforming fossil subsidies, carbon taxes, and carbon pricing (which incentivize lower energy consumption and cleaner energy sources), must be encouraged and supported.

The cost–benefit analysis, a significant part of public investment management, should include the added cost of investment in climate and disaster resilience and carbon mitigation as well as the resulting savings from avoided operational disruptions from climate hazards, benefits from greenhouse gas reductions, indirect aids to the ecosystem, and socioeconomic impacts.

What has been done so far

Developing countries are working to improve public investment management, such as fiscal transfers from the national level to subnational governments to promote greater climate-sensitive public investment. For example, in Brazil, 18 of 36 states have implemented a revenue-sharing scheme that considers, among other variables, the amount of land that was set aside, incentivizing states to strike a balance between the environment and public investment. In India, the formula used in grants for poorer states includes as a variable the percentage of forest areas for promotion of environmental conservation and absorption of greenhouse gasses.

Still, most countries do not systematically include climate change and disaster risk considerations in public investment management. Decision-makers need access to diagnostic tools for assessing climate change and natural hazard data, special planning frameworks and climate and disaster risk maps, environmental impact assessments, and established regulatory and economic standards, such as building codes, to understand and address climate impacts.

The IMF is piloting a Climate-Public Investment Management Framework (C-PIMA) that analyzes climate-aware planning, coordination between entities, project appraisal and selection, budgeting and portfolio management, and risk management among institutions that are responsible for planning, allocating, and implementing infrastructure investment spending. This is to address the gap in climate-aware public investment management.

Implications

Green public investment management depends on the fundamentals of public investment governance. The sequencing of climate-related public investment reforms should go hand in hand and build on ongoing reforms in the wider public fiscal management and infrastructure governance spheres. It should begin with an analysis of current public investment management systems and the institutional capacity to implement reforms, especially in the case of government finance and budget departments, which typically do not have installed capacity related to climate analysis.

The following questions can be used to assess the climate aspects of public investments.

  • Are national investment plans aligned with national climate and disaster risk management objectives, nationally determined contributions, the SDGs, and commitments made under the Paris Agreement?
  • Are climate considerations integrated with public investment management across the public sector at the national and subnational levels, state-owned enterprises, and public–private partnerships?
  • Does the public sector include assessment of climate mitigation and climate and disaster resilience in the appraisal and selection of investment projects?
  • Does the annual budget and other fiscal tools, such as the medium-term fiscal framework, financial statements, asset management, and project audits, take climate and disaster risk into account and does it factor in the benefits of investing in climate related public goods?

As with all public investment management practices, green public investment management requires greater coordination across government institutions that are vital for creating climate-resilient and low-carbon infrastructure. Mobilizing support depends on alignment with the policy priorities of government in the climate area, access to additional climate financing, and institutional capacity to deliver on the promise of green, resilient, and inclusive infrastructure.

This blog was also published by the Asian Development Bank’s Dev Asia Website

Related IDB Blogs:

Five Reasons COP26 is a Big Deal for Finance Ministries

What are the fiscal risks from extreme weather events and how can we deal with them?

Learn more about what the IDB is doing about Fiscal Policy for Climate Change

Resources

Asian Development Bank (ADB). Governance and Public Management.

ADB. Climate Change and Disaster Risk Management.

ADB. 2021. Supporting Quality Infrastructure in Developing Asia. Manila.

D. Furceri, A. Abiad, and P. Topalova. 2014. IMF Survey: The Time Is Right for an Infrastructure Push. IMF News. 30 September.

H. Eguino, R. Delgado, and G. Edwards. 2022. Five Reasons COP26 Is a Big Deal for Finance Ministries. RECAUNANDO BIENESTAR. 4 February.

Inter-American Development Bank (IDB). Fiscal Policy for Climate Change.

L. Alejos. 2021. What Are the Fiscal Risks from Extreme weather Events and How Can We Deal with Them? RECAUNANDO BIENESTAR. 22 September.

S. Hallegatte, J. Rentschler, and J. Rozenberg. 2019. Lifelines: The Resilient Infrastructure Opportunity. World Bank: Washington, DC.



Filed Under: Compras Públicas, Fiscal Policy, Public Spending Tagged With: fiscal, government, public spending

Hiranya Mukhopadhyay

Hiranya Mukhopadhyay is currently the Chief of ADB’s Governance Thematic Group. Prior to joining ADB in 2001, he worked at the National Institute of Public Finance and Policy (New Delhi, India). He holds a Ph.D. degree in Economics from the Jawaharlal Nehru University, New Delhi. He has also visited Boston University and Oxford University as a Post-Doctoral Fellow and completed research projects. His areas of specialization are open economy macroeconomics, and public finance (with special emphasis on subnational finances). He has published several articles in Indian and international journals. He has edited two books published by the Oxford University Press. As a team leader, he has processed and implemented many policy-based loans in ADB for South Asian, and Central and West Asian countries. Some of these loans deal with reforms in the areas covering public financial management, trade policy, state-owned enterprises, expenditure rationalization etc. He has processed the first special policy-based loan (SPBL) in ADB.

Hanif Rahemtulla

Since joining ADB in 2017, Hanif’s focus is on leading and contributing to operational engagements in public investment management for better service delivery. Prior to ADB, he was the senior operations officer at the World Bank Group (2010–2017). He has supported operations in India, Viet Nam, Indonesia, Tajikistan, and Mongolia. He has a doctorate degree from University College London and is a postdoctoral fellow at Canada’s McGill University.

David Bloomgarden

David Bloomgarden has over 30 years of global experience in infrastructure governance, project design, and implementation of infrastructure projects. At the Inter-American Development Bank (IADB) Multilateral Investment Fund (MIF) , he was Chief of the Inclusive City Unit. In this role, he oversaw $44.5 million portfolio of projects in the Latin America and Caribbean (LAC) region developing 40 blended finance investments for small- and medium-sized enterprises in sustainable business models for urban service delivery. As the Lead Private Sector Specialist, David led the IADB MIF program to promote PPPs in Latin America and the Caribbean, providing upstream technical assistance to governments linked to $2 billion of investments in PPP projects. David developed a PPP Readiness Index entitled Infrascope, published by the Economist Intelligence Unit, which measures PPP institutional capacity in the LAC region, and was subsequently adapted by other multilateral development banks for Asia and Africa. David is currently a PPP and Governance Consultant to the World Bank, Global Infrastructure Facility (GIF), and the Asian Development Bank (ADB).

Gerardo Reyes-Tagle

Gerardo Reyes-Tagle is a Lead Fiscal Economist in the IDB's Fiscal Management Division. He has more than 15 years of experience working on issues related to fiscal policy and tax administration, the quality of spending and debt sustainability. Over the years, Gerardo has led the high-level policy dialogue (for example, fiscal policy reforms, fiscal consolidation programs, debt restructuring, institutional capacity building, etc.), key technical assistance, work in the sector economic and financial operations across the spectrum of public finance in Latin America. He has directed and coordinated programs, analytical studies, and technical assistance with the IMF and the World Bank, among other multilateral organizations. Lately, he has focused on the analysis of fiscal risks that may pose threats to fiscal sustainability in the Latin American region, including those related to macroeconomic fluctuations, natural disasters, public companies, exchange rate fluctuations and interest rates, public-private partnerships, etc. It has provided technical assistance in establishing risk units within ministries of finance to help strengthen the identification and mitigation of fiscal risks. Before joining the IDB, Gerardo worked at the Energy Regulatory Commission and the Ministry of Finance in Mexico. He did his Master in Public Policy and Ph.D. in economics studies at Georgetown University and George Washington University in Washington, DC.

Reader Interactions

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Primary Sidebar

Follow Us

Subscribe

RECAUDANDO BIENESTAR

Welcome to the blog of the IDB’s Fiscal Management Division. This is the place where we talk about fiscal policy and management at the national and subnational levels in Latin America and the Caribbean.

Search

Recent Posts

  • Electronic Invoicing: A Latin American Innovation with Global Reach
  • Unveiling the Truth: How Sticking to Fiscal Rules Boosts Investment in Latin America
  • How Developing Countries Reduce the Impact of Climate Vulnerability on Sovereign Risk
  • Making Good Macro-Fiscal Forecasts for Medium-Term Fiscal Sustainability: Lessons from International Practice
  • Smart Public Procurement for Better Public Spending in Latin America and the Caribbean

Categories

  • Administración financiera y tributaria
  • Compras Públicas
  • Compras Públicas
  • Decentralization
  • Fiscal Policy
  • Gestión Fiscal
  • Política fiscal
  • Public Spending
  • Taxes
  • Uncategorized

Footer

Banco Interamericano de Desarrollo
facebook
twitter
youtube
youtube
youtube

Blog posts written by Bank employees:

Copyright © Inter-American Development Bank ("IDB"). This work is licensed under a Creative Commons IGO 3.0 Attribution-NonCommercial-NoDerivatives. (CC-IGO 3.0 BY-NC-ND) license and may be reproduced with attribution to the IDB and for any non-commercial purpose. No derivative work is allowed. Any dispute related to the use of the works of the IDB that cannot be settled amicably shall be submitted to arbitration pursuant to the UNCITRAL rules. The use of the IDB's name for any purpose other than for attribution, and the use of IDB's logo shall be subject to a separate written license agreement between the IDB and the user and is not authorized as part of this CC- IGO license. Note that link provided above includes additional terms and conditions of the license.


For blogs written by external parties:

For questions concerning copyright for authors that are not IADB employees please complete the contact form for this blog.

The opinions expressed in this blog are those of the authors and do not necessarily reflect the views of the IDB, its Board of Directors, or the countries they represent.

Attribution: in addition to giving attribution to the respective author and copyright owner, as appropriate, we would appreciate if you could include a link that remits back the IDB Blogs website.



Privacy Policy

Copyright © 2025 · Magazine Pro on Genesis Framework · WordPress · Log in

Banco Interamericano de Desarrollo

Aviso Legal

Las opiniones expresadas en estos blogs son las de los autores y no necesariamente reflejan las opiniones del Banco Interamericano de Desarrollo, sus directivas, la Asamblea de Gobernadores o sus países miembros.

facebook
twitter
youtube
This site uses cookies to optimize functionality and give you the best possible experience. If you continue to navigate this website beyond this page, cookies will be placed on your browser.
To learn more about cookies, click here
x
Manage consent

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
Non-necessary
Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.
SAVE & ACCEPT