The Macroeconomic and Fiscal Impacts of Climate Adaptation Policy in Bangladesh

Bangladesh is one of the most climate-vulnerable countries. The government has proposed its National Adaptation Plan (NAP), which commits to annual investments of USD 8.5 billion in climate-resilient infrastructure through 2050. This paper assesses the macroeconomic and fiscal impacts of this investment and examines alternative financing strategies using a multi-country, multi-sector general equilibrium G-Cubed model. This analysis first constructs a scenario in which climate damages accumulate without investment in adaptation, and then simulates scenarios in which the government undertakes NAP investment, financed through concessional external financing, commercial borrowing, or domestic taxation. The results indicate that climate adaptation yields net macroeconomic benefits by reducing or even offsetting climate-related output losses. Concessional external financing yields the most favourable outcomes, while commercial borrowing remains a viable alternative despite higher financing costs and exchange-rate pressures; a tax-financed adaptation yields smaller gains due to contractionary demand effects. Sectoral results indicate that the durable manufacturing and service sectors benefit the most, while non-durable manufacturing and agriculture primarily gain through avoided losses rather than expansion. Overall, the findings underscore climate adaptation as a macro-critical policy for Bangladesh and highlight the importance of financing choices in enhancing economic resilience.