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The Impact of Climate-Related Investments on Fiscal and Debt Sustainability Across Africa
Addressing climate change is now central to global political, economic and health agendas, attracting significant public attention. However, meaningful climate action demands substantial public investment, often constrained by limited fiscal space—particularly in Africa, where countries face the dual challenge of climate vulnerability and rising public debt. This study examines how public expenditure and debt respond to national climate-related investments, using panel data from 46 African countries between 2000 and 2021. Results show that increased spending on environmental protection is associated with higher fiscal balances and external debt. Yet, when accounting for the persistence of fiscal and debt conditions over time, these structural dynamics prove more influential than climate investments. In terms of climate risk management, the findings suggest that the high cost of sovereign debt weakens the effectiveness of climate investments. This underscores the need to address debt sustainability to enhance the impact of climate action across the African continent.