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Middle East and Central Asia > Saudi Arabia

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Cover Staff Climate Notes
Key Challenges Faced by Fossil Fuel Exporters during the Energy Transition
Diego Mesa Puyo
,
Augustus J Panton
,
Tarun Sridhar
,
Martin Stuermer
,
Christoph Ungerer
, and
Alice Tianbo Zhang
The global energy transition is affecting fossil fuel exporters from multiple angles. It is adding to longstanding uncertainties on relative movements of fossil fuel demand and supply—which impact fossil fuel-related exports, fiscal flows, investment and subsequently external and fiscal accounts, economic growth, and employment. While policymakers are very familiar with these challenges, they now also face expectations of a permanent decline in the long-run global demand for fossil fuels. Key factors that could determine country-level impacts include (i) the type of fossil fuel a country exports (ii) extraction costs and (iii) country characteristics. The monitoring and mitigation of fiscal risks will need to be stepped up. Fiscal policy also has a role in reducing domestic emissions, encouraging adoption of low-carbon technologies, and helping those most vulnerable to changes from the transition. Broader macroeconomic risks can be reduced by accelerating ongoing structural reforms that support alternative engines of growth. Low- or zero-carbon emission energy industries could offer new avenues that build on existing fossil fuel knowledge and infrastructure. Concurrently, improved financial regulation and supervision could reduce financial sector exposures. Finally, international coordination on the design and implementation of climate policy as well as international transfer schemes (financing and capacity development) could reduce uncertainties surrounding the transition path and associated adverse economic consequences.
Keywords:
Macroeconomic policy; climate change; energy transition; fossil fuel exporters; commodity market; climate mitigation; economic diversification; international coordination; IMF staff Climate note; IMF staff Climate Note 2024/001; fossil fuel exporter; building financial asset buffer; cost exporter; Non-renewable resources; Exports; Oil; Renewable energy; Global
Cover Departmental Papers
Preparing Financial Sectors for a Green Future: Managing Risks and Securing Sustainable Finance
Bozena Radzewicz-Bak
,
Jérôme Vacher
,
Gareth Anderson
,
Filippo Gori
,
Mahmoud Harb
,
Yevgeniya Korniyenko
,
Jiayi Ma
,
Moheb T Malak
,
Dorothy Nampewo
, and
Sahra Sakha
The financial sectors of the Middle East and Central Asia (ME&CA) countries should play an important role in supporting climate-related policies for the region. The sectors are vulnerable to downside risks from climate-related shocks and at the same time offer the potential to help fill the financing gap for needed adaptation and mitigation strategies. Successful approaches to climate change in the region therefore need to coherently integrate financial sector strategies within the overall policy framework to meet this important challenge. To this end, policymakers must ensure that financial sectors are prepared for a green future. This means enhancing the resilience of banks to physical and transition risks from climate change and boosting the capacity of insurance sectors to speed recovery from climate-related disasters and help offset economic costs. Moreover, policies are needed to foster an enabling environment for private green finance, attract investment from other official entities, such as sovereign wealth funds (SWF), and facilitate support from international financial institutions and multilateral development banks. In the near term, policy efforts should center around better understanding and measuring climate-related risks. This includes prioritizing the implementation of methodologies for quantifying and reporting such risks, promoting their transparent disclosure by financial institutions, and strengthening frameworks for their forecasting and analyzing. Over the medium term, governments can play an important role in supporting green finance through incentives and market mechanisms, phasing-out energy subsidies, and introducing new tools and markets (such as carbon pricing frameworks), which can stimulate demand for investment in green technologies. The paper offers a unique regional perspective on climate risks in ME&CA's financial sectors and outlines the road ahead in transitioning to a green future. It is the first to evaluate the impact of climate change on banking institutions in the region and assess the capacity of insurance in mitigating climate-related damages and losses. It contributes to the existing literature by synthesizing the size and nature of regional financing needs for adaptation and mitigation and discussing both opportunities and challenges for the development of green finance. The paper's policy recommendations provide guidance to policymakers on how to develop regulatory responses to enhance financial sustainability amid climate change risks.
Keywords:
Impact of Climate change; Climate Finance; Financial Sector; ME&CA region; ME&CA bank; green financing; financing needs; green finance; ME&CA financing Needs; finance taxonomy; disclosure standard; bank stability nexus; investment capability; Climate change; Natural disasters; Middle East and Central Asia; Middle East; Global; North Africa; East Africa
Cover Staff Discussion Notes
Structural Reforms to Accelerate Growth, Ease Policy Trade-offs, and Support the Green Transition in Emerging Market and Developing Economies
Mrs. Nina Budina
,
Mr. Christian H Ebeke
,
Ms. Florence Jaumotte
,
Andrea Medici
,
Augustus J Panton
,
Marina M. Tavares
, and
Bella Yao
In the aftermath of the COVID-19 pandemic, emerging market and developing economies are grappling with economic scarring, social tension, and reduced policy space. Policy actions are already urgently needed to boost growth in the near term and support the ongoing green transition. At the same time, high public debt and persistently high inflation have constrained policy space, posing difficult policy trade-offs. This Staff Discussion Note focuses on emerging market and developing economies and proposes a framework for prioritization, packaging, and sequencing of macrostructural reforms to accelerate growth, alleviate policy trade-offs, and support the green transition. The note shows that prioritizing the removal of the most binding constraints on economic activity, bundling reforms (governance, business deregulation, and external sector reforms), and appropriate sequencing of other reforms (such as labor market and credit sector reforms) can help front-load reform gains. In emerging market and developing economies with large initial structural gaps, the estimated output effects of such a major reform package are sizable—about 4 percent in two years and 8 percent in four years. Achieving higher growth and lower absolute carbon emissions over time requires a well-designed strategy that includes both macrostructural and green reforms.
Keywords:
policy trade-off; climate policy stringency; policy space; policy action; developing economy; Emerging and frontier financial markets; Structural reforms; Climate policy; Greenhouse gas emissions; Global; Caribbean
Cover IMF Working Papers
Cross-Border Risks of a Global Economy in Mid-Transition
Etienne Espagne
,
William Oman
,
Jean-François Mercure
,
Romain Svartzman
,
Ulrich Volz
,
Hector Pollitt
,
Gregor Semieniuk
, and
Emanuele Campiglio
This paper analyzes the cross-border risks that could result from a decarbonization of the world economy. We develop a typology of cross-border risks and their respective channels. Our qualitative and quantitative scenario analysis suggests that the mid-transition – a period during which fossil-fuel and low-carbon energy systems co-exist and transform at a rapid pace – could have profound stability and resilience implications for global trade and the international financial system.
Keywords:
Climate change; transition risks; cross-border risks; trade; international money and finance.; asset purchase; energy export; baseline export; baseline GDP; cost of capital; Non-renewable resources; Climate policy; Exports; Global
Cover IMF Staff Country Reports
United Arab Emirates: Selected Issues
International Monetary Fund. Middle East and Central Asia Dept.
The Selected Issues paper discusses United Arab Emirates’ (UAE) focus on reforms for productive and greener growth. This paper aims to quantify the potential long-term growth and productivity gains from ongoing structural reform efforts. Facilitating green and sustainable private finance would reduce the direct fiscal burdens of investment needs and help promote a smooth transition to a lower carbon future. The UAE has recently signed or started negotiations for Comprehensive Economic Partnership Agreements with eleven countries. Depending on the UAE’s ability to further attract foreign direct investment, the reduction of tariffs, especially on intermediate inputs, can significantly lift long-term growth through stronger competition, access to a higher number of varieties and quality of inputs, and transfer of technology. Developing and scaling up private green and sustainable finance, as well as creating an enabling environment for smooth energy transition, would reduce direct fiscal costs, increase efficiency of green investments, and preserve public financial wealth while delivering on growth and Net Zero ambitions.
Keywords:
UAE government; ICT investment outcome; FDI restrictiveness index; quantifying gains from trade liberalization; productivity gain; Climate finance; Digital economy; Foreign direct investment; Sustainable growth; Global
Cover IMF Working Papers
Measuring Carbon Emissions of Foreign Direct Investment in Host Economies
Maria Borga
,
Achille Pegoue
,
Mr. Gregory M Legoff
,
Alberto Sanchez Rodelgo
,
Dmitrii Entaltsev
, and
Kenneth Egesa
This paper presents estimates of the carbon emissions of FDI from capital formation funded by FDI and the production of foreign-controlled firms. The carbon intensity of capital formation financed by FDI has trended down, driven by reductions in the carbon intensity of electricity generation. Carbon emissions from the operations of foreign-controlled firms are greater than those from their capital formation. High emission intensities were accompanied by high export intensities in mining, transport, and manufacturing. Home country policies to incentivize firms to meet strict emissions standards in both their domestic and foreign operations could be important to reducing emissions globally.
Keywords:
Carbon emissions; foreign direct investment; input-output tables; A. carbon emissions; carbon intensity; emission intensity; FDI flow; carbon emission intensities of MNEs; Greenhouse gas emissions; Gross fixed investment; Exports; Manufacturing; Africa; Global
Cover Departmental Papers
Economic and Environmental Benefits from International Cooperation on Climate Policies
Jean Chateau
,
Ms. Florence Jaumotte
, and
Gregor Schwerhoff
This paper discusses and analyzes various international mechanisms to scale up global action on climate mitigation and address the policy gap in this area. Despite the new commitments made at COP 26, there is still an ambition and a policy gap at the global level to keep temperature increases below the 2°C agreed in Paris. Avoiding the worst outcomes of climate change requires an urgent scaling up of climate policies. Recent policy proposals include the idea of common minimum carbon prices, which underlie the IMF’s international carbon price proposal (Parry, Black, and Roaf 2021) and the climate club proposal of the German government. While global carbon prices are not a new idea, the new elements are the use of carbon price floors—which allow countries to do more if they wish—and the differentiation of carbon price floors by level of development. In the absence of international coordination, countries with ambitious climate policies are considering introducing a border carbon adjustment mechanism to prevent domestic producers from being at a competitive disadvantage due to more ambitious domestic climate policies. An interesting question from the global perspective is whether border carbon adjustment would deliver substantial additional emissions reductions or incentivize other countries to join a carbon price floor agreement.
Keywords:
climate policy; border carbon adjustment; international coordination; global minimum carbon prices; ICPF scenario; carbon price floor agreement; B. policy scenario overview; baseline emission projection; GDP cost; Greenhouse gas emissions; Climate policy; Climate change; Global; Africa; East Asia; Caribbean
Cover IMF Working Papers
Still Not Getting Energy Prices Right: A Global and Country Update of Fossil Fuel Subsidies
Ian W.H. Parry
,
Mr. Simon Black
, and
Nate Vernon
This paper provides a comprehensive global, regional, and country-level update of: (i) efficient fossil fuel prices to reflect their full private and social costs; and (ii) subsidies implied by mispricing fuels. The methodology improves over previous IMF analyses through more sophisticated estimation of costs and impacts of reform. Globally, fossil fuel subsidies were $5.9 trillion in 2020 or about 6.8 percent of GDP, and are expected to rise to 7.4 percent of GDP in 2025. Just 8 percent of the 2020 subsidy reflects undercharging for supply costs (explicit subsidies) and 92 percent for undercharging for environmental costs and foregone consumption taxes (implicit subsidies). Efficient fuel pricing in 2025 would reduce global carbon dioxide emissions 36 percent below baseline levels, which is in line with keeping global warming to 1.5 degrees, while raising revenues worth 3.8 percent of global GDP and preventing 0.9 million local air pollution deaths. Accompanying spreadsheets provide detailed results for 191 countries.
Keywords:
fossil fuel subsidies; efficient fuel prices; supply costs; climate change; local air pollution mortality; revenue gains; spreadsheet tools.; fossil fuel subsidy; supply cost; price reform; fossil fuel; fuel user price; Non-renewable resources; Fuel prices; Energy subsidies; Greenhouse gas emissions; Global
Cover Departmental Papers
The Future of Oil and Fiscal Sustainability in the GCC Region
Mr. Tokhir N Mirzoev
,
Ling Zhu
,
Yang Yang
,
Ms. Tian Zhang
,
Mr. Erik Roos
,
Mr. Andrea Pescatori
, and
Mr. Akito Matsumoto
The oil market is undergoing fundamental change. New technologies are increasing the supply of oil from old and new sources, while rising concerns over the environment are seeing the world gradually moving away from oil. This spells a significant challenge for oil-exporting countries, including those of the Gulf Cooperation Council (GCC) who account for a fifth of the world’s oil production. The GCC countries have recognized the need to reduce their reliance on oil and are all implementing reforms to diversify their economies as well as fiscal and external revenues. Nevertheless, as global oil demand is expected to peak in the next two decades, the associated fiscal imperative could be both larger and more urgent than implied by the GCC countries’ existing plans.
Keywords:
DPPP; DP; price; demand; GCC country; GCC region; oil demand; hydrocarbon GDP; market share; price assumption; GCC government; Oil prices; Oil consumption; Oil; Fiscal consolidation; Fiscal stance; Global; data IMF Library; research department; Energy conservation; Middle East and Central Asia
Cover IMF Working Papers
Mitigation Policies for the Paris Agreement: An Assessment for G20 Countries
Ian W.H. Parry
,
Victor Mylonas
, and
Nate Vernon
Following submission of greenhouse gas (GHG) mitigation commitments or pledges (by 190 countries) for the 2015 Paris Agreement, policymakers are considering specific actions for their implementation. To help guide policy, it is helpful to have a quantitative framework for understanding: i) the main impacts (on GHGs, fiscal balances, the domestic environment, economic welfare, and distributional incidence) of emissions pricing; ii) trade-offs between pricing and other (commonly used) mitigation instruments; and iii) why/to what extent needed policies and their impacts differ across countries. This paper provides an illustrative sense of this information for G20 member countries (which account for about 80 percent of global emissions) under plausible (though inevitably uncertain) projections for future fuel use and price responsiveness. Quantitative results underscore the generally strong case for (comprehensive) pricing over other instruments, its small net costs or often net benefits (when domestic environmental gains are considered), but also the potentially wide dispersion (and hence inefficiency) in emissions prices implied by countries’ mitigation commitments.
Keywords:
WP; co; electricity Co; tons Co; percent Co; road fuel price elasticity; Paris Agreement; carbon pricing; G20 countries; instrument choice; air pollution mortality; tax incidence; welfare effects; climate mitigation; fuel price elasticity; fuel price responsiveness; cost increase; monopoly price distortion; welfare cost; responsiveness of emission; countries flexibility; fuel price response; price change; price projection; Carbon tax; Greenhouse gas emissions; Non-renewable resources; Fuel prices; Fuel tax; Africa; Global