Domestic Financial Systems: Public Resource Mobilization

Domestic public resources remain well below requirements. Average tax-to-GDP ratios remain around 16.5% in emerging markets and 13% in low-income countries (Baer et al., 2025; IMF, 2026e). Global carbon-pricing revenues reached USD 107 billion in 2025, but low- and middle-income countries received only around 1% (World Bank, 2026b). Meanwhile, fossil-fuel subsidies reached USD 725 billion in 2024, alongside an estimated USD 1.2 trillion annually in subsidies for agriculture, fisheries, water, transport, and plastics (Bhattacharya et al., 2025; IMF, 2026h), and tax expenditures forgo around 25% of total tax revenues globally (Redonda et al., 2026).

Fiscal outcomes are improving slowly, but implementation is advancing across tax administration, revenue strategies, carbon pricing, and climate-informed public financial management. Of 31 countries developing medium-term revenue strategies, 14 had reached early or full implementation by 2026 (PCT, 2026). Carbon pricing now covers 29% of global emissions, up from around 12% at the time of the Paris Agreement (World Bank, 2026b). Climate-informed fiscal management is also advancing, including climate-linked budgeting in Tunisia (NDC Partnership, 2026a) and climate-risk appraisal in Costa Rica and Colombia (Llempén et al., 2024), but subsidy reform remains slow.

Revenue and implementation constraints are most pervasive in lower-income and capacity-constrained countries. Seventy-one developing countries had tax-to-GDP ratios below 15% in 2022, including 41 low-income developing countries, 22 fragile and conflict-affected states, and 37 resource-rich economies (Baer et al., 2025). Average carbon prices are around USD 7/tCO₂e in low-income countries, against USD 44/tCO₂e in high-income economies (World Bank, 2026b). Developing countries have also benefited less from the OECD/G20 BEPS framework because of complex rules and capacity constraints (OECD, 2025b), while ODA for DRM capacity-building remains below Addis Tax Initiative commitments (Sanjeeda et al., 2025).

Recent reforms have yet to generate broad-based increases in fiscal resources or demonstrable improvements in climate and development investment. Total public revenues are rising in middle-income countries but declining in low-income countries (IMF, 2026e). Country experience shows potential: between 1990 and 2022, 42 countries raised tax-to-GDP ratios by at least five percentage points, though 54 saw declines (Baer et al., 2025), Morocco cut fossil-fuel subsidy spending by around USD 4 billion, or 80% (Riebandt, 2024), and Togo improved investment efficiency by five percentage points (IMF, 2025). However, these examples do not establish aggregate climate-investment outcomes.