Climate Challenges and Opportunities in the Middle East and Central Asia

45

The Middle East and Central Asia are facing a severe climate crisis, with temperatures rising twice as fast as the global average and rainfall becoming scarcer and less predictable. Fragile states are being significantly affected, and conflicts may worsen. The United Nations Climate Change Conference (COP28) is a crucial forum to discuss policies to prevent more disruptive climate change. Current global commitments are only aiming to reduce emissions by 11% by the end of this decade, well short of the 25–50% needed to meet the goals of the Paris Agreement.

Climate change has far-reaching economic and social costs, with changing temperature and rainfall patterns eroding per capita incomes and altering the sectoral composition of output and employment. A recent IMF study shows that climate disruptions endanger food security, public health, poverty, inequality, displacement, political stability, and even conflict. Past climate disasters have resulted in permanent GDP losses of 5.5% in Central Asia and 1.1% in the Middle East and North Africa.

Climate effects are particularly pronounced in fragile and conflict-affected states, who suffer four times higher output losses after climate-related weather shocks. Climate displacement crises, like Somalia’s, highlight the devastating effects of climate change on vulnerable regions, emphasizing the need for governments in the Middle East and Central Asia to adapt.

To address the financing gaps caused by higher borrowing costs and constrained government spending, private finance is essential. Measures like accelerated fuel-subsidy reform, carbon taxes, and climate regulations could ease funding burdens and provide investors with clearer signals. Many Middle East and Central Asian countries are already taking steps to mitigate the impacts of climate change, such as improving water management practices and reducing their carbon footprint.

IMF research suggests fiscal policies can help countries achieve climate pledges by cutting per capita greenhouse gas emissions by up to 7% by 2030 and accelerating further to net-zero emissions by 2050. However, more ambitious climate action is needed, including expanding and reinforcing existing adaptation and mitigation policies, prioritizing comprehensive strategies that address immediate crises and prepare for long-term consequences, and investing in climate-resilient infrastructure, agriculture, disaster risk management, and social protection.

Policymakers are grappling with the challenge of balancing economic tradeoffs in the transition to renewable energy. While reducing fuel subsidies or imposing carbon emission taxes may offer long-term benefits, they may also increase transition costs due to economic shifts. Boosting renewable energy investment through government spending and subsidies, like Saudi Arabia’s solar power plant, may seem easier in the short term but may increase overall costs.

To address these trade-offs, policymakers should find a mix of policies. Multilateral support is also crucial for addressing climate financing needs, particularly for low- and lower-middle income countries. The IMF’s Resilience and Sustainability Facility can help address climate vulnerabilities, such as the recent $1.3 billion RSF climate program with Morocco. However, global and regional initiatives like COP28 should continue to foster cross-border collaboration and promote private sector climate finance, including securing additional climate funding for vulnerable countries.