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Adaptation to climate change is a necessity for advanced and developing economies alike. Policymakers face the challenge of facilitating this transition. This Note argues that adaptation to climate change should be part of a holistic development strategy involving both private and public sector responses. Governments can prioritize public investment in adaptation programs with positive externalities, address market imperfections and policies that make private adaptation inefficient, and mobilize revenues for, and distribute the benefits of, adaptation. Although the choice of what should be done and at what cost ultimately depends on each society's preferences, economic theory provides a useful framework to maximize the impact of public spending. Cost-benefit analysis, complemented by the analysis of distributional effects, can be used to prioritize adaptation programs as well as all other development programs to promote an efficient and just transition to a changed climate. While compensations may be needed to offset damages that are either impossible or too expensive to abate, subsidies for adaptation require careful calibration to prevent excessive risk taking.

Climate and civilization.

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This Staff Climate Note is part of a series of three Notes (IMF Staff Climate Note 2022/001, 2022/002, and 2022/003) that discuss fiscal policies for climate change adaptation. A first Note (Bellon and Massetti 2022, henceforth Note 1) examines the economic principles that can guide the integration of climate change adaptation into fiscal policy. It argues that climate change adaptation should be part of a holistic, sustainable, and equitable development strategy. To maximize the impact of scarce resources, governments need to prioritize among all development programs, including but not limited to adaptation. To this end, they can use cost-benefit analysis while ensuring that the decision-making process reflects society’s preferences about equity and uncertainty. A second Note (Aligishiev, Bellon, and Massetti. 2022, henceforth Note 2) discusses the macro-fiscal implications of climate change adaptation. It reviews evidence on the effectiveness of adaptation at reducing climate change damages, on residual risks, and on adaptation investment needs, and suggests ways to integrate climate risks and adaptation costs into national macro-fiscal frameworks with the goal of guiding fiscal policy. It stresses that lower-income vulnerable countries, which have typically not contributed much to climate change, face exacerbated challenges that warrant increased international support. This third Note considers how to translate adaptation principles and estimates of climate impacts into effective policies.

Environmental Economics --- Natural Disasters --- Environmental Policy --- Taxation, Subsidies, and Revenue: General --- National Government Expenditures and Related Policies: General --- Fiscal and Monetary Policy in Development --- Climate --- Natural Disasters and Their Management --- Global Warming --- Environmental Economics: Government Policy --- National Budget, Deficit, and Debt: General --- Climate change --- Natural disasters --- Environmental policy & protocols --- Environment --- Climate policy --- Climatic changes --- Environmental policy

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This paper documents the steady increase in intraregional trade in sub-Saharan Africa since 1980, links this rise to important growth spillovers in the region, and identifies the main source countries and those most vulnerable to the economic conditions of others. Estimates show that in the short run, positive idiosyncratic shocks to regional trading partners’ growth significantly increase growth in the average sub-Saharan African country, while in the long-run the annual impact of growth in regional trading partner’s is smaller in magnitude. Policy implications including the need to support further continent-wide integration and the associated growth spillovers are discussed. Actions policymakers in sub-Saharan Africa can take to capture the benefits of these spillovers, while limiting exposure to the associated risks, are also proposed.

Economic history. --- Economic conditions --- History, Economic --- Economics --- Exports and Imports --- Macroeconomics --- Empirical Studies of Trade --- Economic Integration --- Macroeconomic Analyses of Economic Development --- Measurement of Economic Growth --- Aggregate Productivity --- Cross-Country Output Convergence --- Economywide Country Studies: Africa --- Externalities --- Trade: General --- Trade Policy --- International Trade Organizations --- International economics --- Spillovers --- Exports --- Regional trade --- Imports --- Direction of trade --- Financial sector policy and analysis --- International trade --- International finance --- Balance of trade --- South Africa

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Economic volatility remains a fact of life in Sub Saharan Africa (SSA). Household-level shocks create large consumption fluctuations, raising the incidence of poverty. Drawing on micro-level data from South Africa and Tanzania, we examine the vulnerability to shocks across household types (e.g. by education, ethnic group, and economic activity) and we quantify the impact that reducing consumption volatility would have on aggregate poverty. We then discuss coverage of consumption insurance mechanisms, including financial access and transfers. Country characteristics crucially determine which household-level shocks are most prevalent and which consumption-smoothing mechanisms are available. In Tanzania, agricultural shocks are an important source of consumption risk as two thirds of households are involved in some level of agricultural production. For South Africa, we focus on labor market risk proxied by transitions from formal employment to informal work or unemployment. We find that access to credit, when available, and government transfers can effectively mitigate labor market shocks.

Labor --- Macroeconomics --- Poverty and Homelessness --- National Government Expenditures and Welfare Programs --- Agricultural Labor Markets --- Microeconomic Analyses of Economic Development --- Economywide Country Studies: Africa --- Macroeconomics: Consumption --- Saving --- Wealth --- Welfare, Well-Being, and Poverty: General --- Aggregate Factor Income Distribution --- Urban, Rural, and Regional Economics: Household Analysis: General --- Employment --- Unemployment --- Wages --- Intergenerational Income Distribution --- Aggregate Human Capital --- Aggregate Labor Productivity --- Poverty & precarity --- Labour --- income economics --- Consumption --- Poverty --- Income --- Household consumption --- National accounts --- Economics --- Economic theory --- South Africa

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A growing literature estimates the macroeconomic effect of weather using variations in annual country-level averages of temperature and precipitation. However, averages may not reveal the effects of extreme events that occur at a higher time frequency or higher spatial resolution. To address this issue, we rely on global daily weather measurements with a 30-km spatial resolution from 1979 to 2019 and construct 164 weather variables and their lags. We select a parsimonious subset of relevant weather variables using an algorithm based on the Least Absolute Shrinkage and Selection Operator. We also expand the literature by analyzing weather impacts on government revenue, expenditure, and debt, in addition to GDP per capita. We find that an increase in the occurrence of high temperatures and droughts reduce GDP, whereas more frequent mild temperatures have a positive impact. The share of GDP variations that is explained by weather as captured by the handful of our selected variables is much higher than what was previously implied by using annual temperature and precipitation averages. We also find evidence of counter-cyclical fiscal policies that mitigate adverse weather shocks, especially excessive or unusually low precipitation episodes.

Equatorial Guinea, Republic of --- Macroeconomics --- Economics: General --- Environmental Economics --- Natural Disasters --- Public Finance --- Multiple or Simultaneous Equation Models: Models with Panel Data --- Large Data Sets: Modeling and Analysis --- Existence and Stability Conditions of Equilibrium --- Environment and Growth --- Climate --- Natural Disasters and Their Management --- Global Warming --- National Government Expenditures and Related Policies: General --- Debt --- Debt Management --- Sovereign Debt --- Economic & financial crises & disasters --- Economics of specific sectors --- Climate change --- Natural disasters --- Public finance & taxation --- Environment --- Expenditure --- Public debt --- Currency crises --- Informal sector --- Economics --- Climatic changes --- Expenditures, Public --- Debts, Public