IMF suggests Bangladesh sustainable investment plans to address climate change

To address the impact of climate change_ the International Monetary Fund (IMF) has laid emphasis on carefully costed and fiscally sustainable investment plans for Bangladesh to attract donor finance.

"As the climate financing needs are large_ a combination of domestic and external funding (financed in large part with donor support) is needed. While climate change is being covered in all recent long-term national plans_ Bangladesh seems to have limited fiscal space-especially post-COVID-19-making it challenging to accommodate large-scale and costly climate-resilient investment. Carefully costed and fiscally sustainable investment plans are needed to attract donor finance_" said IMF's Mission Chief for Bangladesh Rahul Anand.

Being one of the most climate-vulnerable countries_ Bangladesh has taken several steps to mitigate the impact of climate change_ a key risk to future growth_ including launching a US$200 million Green Transformation Fund (GTF) to provide low-rate long-term financing for purchases of more efficient_ cleaner machinery and equipment in all exports sectors_ he mentioned.

"Bangladesh Bank (BB) issued Policy Guidelines for Green Banking for banks in 2011 and Non-Bank Financial Institutions in 2013_ which covered the formulation of green banking policy_ governance and the creation of a Climate Risk Fund (CRF) in every financial institution_" he added.

At less than 10 per cent_ he noted that Bangladesh's tax revenue-to-GDP ratio remains low_ constraining the government's ability to increase spending on resilient infrastructure_ as well as reducing loss and damage by adapting the infrastructure to climate change_ reports BSS.

Therefore_ he said_ improving revenue collection by expanding the tax base and modernising tax administration remains a priority.

Transitioning to more risk-based credit evaluation_ he said_ lending and supervision will help to strengthen the financial landscape to channel climate financing. Reform priorities include strengthening banking regulation and supervision_ improving corporate governance_ and reforming legal systems.

Rahul Anand said the authorities are amending several laws and acts to strengthen the financial sector_ and it will be important to align them with best international practices.

"Reforms to improve the business environment and deepen capital markets will be critical to attract Foreign Direct Investment (FDI) and debt financing_" he continued.

He said the NSC pricing reforms would help to develop the government bond market and early implementation of carbon taxation slated for FY25 in the eighth five-year plan_ could leverage private finance by signaling environmental commitments.