With dozens of countries struggling to manage both staggering debt and mounting climate disasters, some financial leaders are calling for green debt relief.
How does a country deal with climate disasters when it’s drowning in debt? Not very well, it turns out. Especially not when a global pandemic clobbers its economy.
Take Belize, Fiji and Mozambique. Vastly different countries, they are among dozens of nations at the crossroads of two mounting global crises that are drawing the attention of international financial institutions: climate change and debt.
They owe staggering amounts of money to various foreign lenders. They face staggering climate risks, too. And now, with the coronavirus pandemic pummeling their economies, there is a growing recognition that their debt obligations stand in the way of meeting the immediate needs of their people — not to mention the investments required to protect them from climate disasters.
The combination of debt, climate change and environmental degradation “represents a systemic risk to the global economy that may trigger a cycle that depresses revenues, increases spending and exacerbates climate and nature vulnerabilities,” according to a new assessment by the World Bank, International Monetary Fund and others, which was seen by The Times. It comes after months of pressure from academics and advocates for lenders to address this problem.
The bank and the I.M.F., whose top officials are meeting this week, are planning talks in the next few months with debtor countries, creditors, advocates and ratings agencies to figure out how to make new money available for what they call a green economic recovery. The goal is to come up with concrete proposals before the international climate talks in November and ultimately, to get buy-in from the world’s wealthiest countries, including China, which is the largest single creditor country in the world.
Kristalina Georgieva, the managing director of the I.M.F., said in an emailed statement that green recovery programs had the potential to spur ambitious climate action in developing countries, “especially at a time they face fiscal constraints because of the impact of the pandemic on their economies.”
One of the countries at the crossroads of the climate and debt crises is Belize, a middle-income country on the Caribbean coast of Central America. Its foreign debt had been steadily rising for the last few years. It was also feeling some of the most acute effects of climate change: sea level rise, bleached corals, coastal erosion. The pandemic dried up tourism, a mainstay of its economy. Then, after two hurricanes, Eta and Iota, hit neighboring Guatemala, floods swept away farms and roads downstream in Belize.
Belize, said Christopher Coye, the country’s minister of state for finance, needs immediate debt relief to deal with the effects of global warming that it had little role in creating.
“How do we pursue climate action?” he said. “We are fiscally constrained at this point.”
“We should be compensated for suffering the excesses of others and supported in mitigating and adapting to climate change effects — certainly in the form of debt relief and concessionary funding,” Mr. Coye said.
Many Caribbean countries like Belize do not qualify for low-interest loans that poorer countries are eligible for.
“We cannot walk head on, eyes wide open, into a debt crisis that is foreseeable and preventable,” the United Nations Secretary General, António Guterres, said last week as he called for debt relief for a broad range of countries. “Many developing countries face financing constraints that mean they cannot invest in recovery and resilience.”
The discussions around debt and climate are likely to intensify in the run up to the climate talks in November, where money is expected to be one of the main sticking points. Rich nations are nowhere close to delivering the promised $100 billion a year to help poorer countries deal with the effects of global warming. Low- and middle-income countries alone owed $8.1 trillion to foreign lenders in 2019, the most recent year for which the data is available — and that was before the pandemic.
At the time, half of all countries that the World Bank classified as low-income were either in what it called “debt distress or at a high risk of it.” Many of those are also acutely vulnerable to climate change, including more frequent droughts, stronger hurricanes and rising sea levels that wash away coastlines.
(The fund said on Monday that it would not require 28 of the world’s poorest countries to make debt payments through October, so their governments can use the money on emergency pandemic-related relief.)
The authors proposed what they called a climate-health-debt swap, where bilateral creditors, namely China, would forgive some of the debt in exchange for climate and health care investments. (China has said nothing publicly about the idea of debt swaps.)
And then there’s Mozambique. The sixth-poorest country in the world.
In developing countries, the share of government revenues that go into paying foreign debts nearly tripled to 17.4 percent between 2011 and 2020, an analysis by Eurodad, a debt relief advocacy group found.
Category: Science
Source: New York Times
