Scenarios for Fiscal Space. Adapting to the Long-Term Challenges of Climate Change

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Climate change poses significant challenges for governments seeking to assess their long-run financial condition. Looking forward, climate change is likely to threaten multiple aspects of a country’s economy. Governments will necessarily be required to provide support in adapting to these challenges. While considerable uncertainty exists as to the nature and magnitude of the adaptation burdens that will be faced, many countries are likely to confront serious limits in their fiscal capacity to address them. With this in mind, this paper argues that governments need to urgently expand their understanding of the long-term fiscal impact of climate change adaptation and outlines pathways to complement current assessments of fiscal space accordingly – with a particular emphasis on scenario analysis. It also calls for the IMF to play an increasingly supportive role in helping countries to anticipate and prepare for the fiscal challenge of adaptation.