Building climate resilience for economic growth

During the ongoing IMF annual meetings happening in Marrakech in Morocco, Kenya’s Cabinet Secretary of National Treasury and Economic Planning Prof. Njuguna Ndung’u shared some of the effects of climate change on the country’s economic growth. Prof. Ndung’u highlighted the alarming reality that African countries are all experiencing global warming beyond the threshold of 1.5 degrees. This poses a significant fiscal risk with the potential for droughts and floods to strike unpredictably, causing macro disequilibrium and food scarcity which in turn leads to domestic inflation and depreciation of the exchange rate. Kenya recently faced one of the worst droughts in 40 years, resulting in the loss of millions of cattle and a spike in food prices. Here are some key points from Prof. Ndung’u's interview: 1. Climate Change as a Major Fiscal Risk: Ndung’u stressed the urgent need to address climate change as a major fiscal risk. The unpredictability of weather patterns leads to droughts and floods which have a direct impact on the country's economic stability. Severe droughts result in food scarcity, which not only affects the livelihoods of the people but also has a domino effect on domestic inflation and exchange rates. The Cabinet Secretary emphasized that climate change is a pressing issue that requires immediate attention from policymakers and stakeholders. 2. Impact on Macroeconomic Stability: The recent drought in Kenya highlighted the fragility of the country's food supply chain. The loss of millions of cattle due to the drought disrupted the agricultural sector, leading to a scarcity of food and a subsequent rise in domestic prices. The scarcity also affected energy prices, further destabilizing the economy. Ndung’u pointed out that macro disequilibrium caused by climate change can have far-reaching consequences, impacting various sectors of the economy. 3. Importance of Climate Resilience: Ndung’u emphasized the need to build climate resilience to mitigate the effects of climate change. He highlighted the importance of investing in adaptation and mitigation strategies to address the challenges posed by changing weather patterns. The Cabinet Secretary underscored the significance of developing innovative tools and instruments to safeguard the economy against climate risks and strengthen its resilience. In conclusion, Ndung’u highlighted the pioneering role of the RLSF instrument in addressing climate change risks and extending IMF programs. He emphasized the importance of adopting new instruments and strategies to tackle the challenges posed by climate change and enhance the country's economic resilience. As Kenya continues to grapple with the aftermath of the recent drought and other climate-related challenges, policymakers are called upon to prioritize climate resilience and invest in sustainable solutions to secure the country's economic future.