Enhancing Fiscal Resilience: Medium-Term Frameworks for Managing Emerging Risks

Climate change poses significant well-known risks to fiscal sustainability in Latin America and the Caribbean, such as annual losses of up to 1.7 percent of GDP due to extreme weather events, the devaluation of carbon-intensive assets caused by the transition to a low-carbon economy, and the loss of fiscal revenues linked to fossil fuels. This study describes how governments can integrate green medium-term fiscal frameworks (MTFFs) into their fiscal planning to mitigate these risks. Green MTFFs combine effective carbon pricing, sustainable reforms, and strategic investments in green infrastructure. They are not only a technical tool but an imperative approach to avoid fiscal decisions that undermine growth and stability in the region. They also expose certain shortcomings, such as lack of reliable data, institutional fragmentation, and fiscal space constraints.