The Maldives faces an existential threat due to climate change. Rising sea levels, coral bleaching, and extreme weather events are poised to have devastating effects on the island nation. The World Bank’s Country Climate and Development Report (CCDR) for the Maldives highlights the urgent need for substantial investment to combat these climate risks. However, the question remains: how will the Maldives finance the vast adaptation measures required to secure its future?
The Financial Challenge
The financial requirements for the Maldives’ climate change adaptation are staggering. According to the CCDR, the estimated cost of adaptation to sea-level rise and flooding alone ranges between USD 2 billion and USD 4 billion. This figure does not account for other critical adaptation areas, such as mitigating the impacts of ocean warming on coral reefs and fisheries, nor does it cover the country’s mitigation goals. Meeting such financial demands requires a robust and multifaceted approach.
To make matters more pressing, the Maldives is grappling with high levels of public debt. As of 2023, the country’s debt stood at 123% of GDP, with limited fiscal and external buffers to absorb further financial shocks. The Maldives must balance its debt servicing obligations, which are set to rise sharply by 2026, with the need to invest in climate resilience and sustainable development. The CCDR report suggests that without careful planning and timely fiscal reforms, the country risks falling into a macro-financial crisis.
The Need for Fiscal Reforms
The CCDR emphasises the importance of fiscal reforms to create space for climate-related spending. One of the critical measures recommended is a reduction in public expenditure, particularly through reforms in subsidies, state-owned enterprises, and healthcare spending. The report highlights that addressing these vulnerabilities is essential to mobilising resources for climate adaptation while maintaining economic stability.
Additionally, increasing government revenues through targeted tax reforms is another avenue to consider. The CCDR proposes raising the Green Tax, with the additional funds allocated to environmental and climate-resilient interventions. Such a measure could help finance adaptation projects and simultaneously promote sustainable practices within key sectors like tourism.
Mobilising External Financing
While domestic fiscal reforms are crucial, the Maldives cannot meet its climate adaptation needs through public finance alone. External financing will play a pivotal role in bridging the gap. Historically, the Maldives has received approximately USD 500 million in grants and concessional financing for climate-related projects. However, this is insufficient to cover the projected adaptation costs.
The CCDR suggests that the Maldives should explore new and innovative sources of concessional financing, including dedicated conservation and climate adaptation trust funds. These funds could serve as vehicles to attract international donors and investors, providing the necessary capital to support adaptation efforts.
Carbon markets also present an untapped opportunity for the Maldives. By developing a national carbon market strategy and robust carbon crediting systems, the Maldives could access finance from voluntary and compliance markets. Blue carbon projects, which focus on conserving and restoring coastal and marine ecosystems that capture carbon, are particularly relevant for the Maldives, given its rich marine biodiversity.
Engaging the Private Sector
The role of the private sector in financing climate action cannot be understated. The CCDR highlights the importance of mobilising private sector investments, particularly through public-private partnerships (PPPs). However, the Maldives must create the right conditions to attract private investment. This includes updating the public investment management framework and using de-risking instruments to encourage foreign direct investment.
The CCDR also underscores the need for better coordination between institutions to ensure the success of PPPs. The government should adopt a clear fiscal commitments and contingent liabilities framework for these partnerships, enhancing coordination and reducing financial risks.
The Maldives’ journey toward climate resilience requires a concerted effort to mobilise finance from diverse sources. The CCDR outlines a comprehensive strategy, emphasising the need for fiscal reforms, external financing, and private sector engagement. Yet, time is of the essence. Without immediate and sustained investments in climate adaptation, the Maldives faces the risk of irreversible environmental and economic damage. With the right mix of domestic and external financing, the Maldives can safeguard its future and continue to thrive as a vibrant island nation, demonstrating that even the most vulnerable countries can lead the way in climate resilience.
