How does a country deal with climate disasters when it
is drowning in debt? Not very well, it turns out. Especially not when a global
pandemic clobbers its economy.
اضافة اعلان
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 New York Times. It comes after months of pressure from academics and
advocates for lenders to address this problem.
The bank and the IMF, 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, managing director of the IMF, 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.
Today, the debt that Belize owes its foreign creditors
is equal to 85% of its entire national economy. The private credit ratings
agency Standard & Poor’s has downgraded its creditworthiness, making it
tougher to get loans on the private market. The IMF calls its debt levels
“unsustainable.”
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,” Coye said.
Many Caribbean countries like Belize do not qualify for
low-interest loans that poorer countries are eligible for.
The United Nations said on March 31 that the global
economic collapse endangered nearly $600 billion in debt service payments over
the next five years. Both the World Bank and the IMF are important lenders, but
so are rich countries, as well as private banks and bondholders. The global
financial system would face a huge problem if countries faced with shrinking
economies defaulted on their debts.
“We cannot walk head on, eyes wide open, into a debt
crisis that is foreseeable and preventable,” U.N. 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 Biden administration, in an executive order on
climate change, said it would use its voice in international financial
institutions, like the World Bank, to align debt relief with the goals of the
Paris climate agreement, though it has not yet detailed what that means.
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 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.)
Lately, there’s been a flurry of proposals from
economists, advocates and others to address the problem. The details vary. But
they all call, in one way or another, for rich countries and private creditors
to offer debt relief, so countries can use those funds to transition away from
fossil fuels, adapt to the effects of climate change, or obtain financial
reward for the natural assets they already protect, like forests and wetlands.
One widely circulated proposal calls on the Group of 20 (the world’s 20 biggest
economies) to require lenders to offer relief “in exchange for a commitment to
use some of the newfound fiscal space for a green and inclusive recovery.”
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