How Debt and Climate Change Pose ‘Systemic Risk’ to the Global Economy

Debt and climate talks are expected to intensify in the run-up to the November climate negotiations, where money is expected to be one of the main sticking points. Rich countries fall far short of delivering the $ 100 billion pledged per year to help poorer countries cope with the effects of global warming. On their own, low- and middle-income countries owed foreign lenders $ 8.1 trillion in 2019, the most recent year for which data is available – and that was before the pandemic.

At the time, half of all countries the World Bank classified as low income were either in what it called “debt distress or at high risk.” Many of them are also extremely vulnerable to climate change, including more frequent droughts, more severe hurricanes and rising sea levels that wash away the coasts.

(The fund said on Monday it would not force 28 of the world’s poorest countries to repay their debt until October, so their governments can use the money for emergency relief from the pandemic. )

Lately there has been a gust of proposals economists, lawyers and other at address the problem. Details vary. But they all call on, in one way or another, rich countries and private creditors to offer debt relief, so countries can use those funds to move away from fossil fuels, adapt to effects of climate change or obtain a financial reward for natural active ingredients they already protect, like forests and wetlands. Widely circulated proposal calls on Group of 20 (world’s 20 largest economies) to demand lenders provide relief “In exchange for a commitment to use part of the new fiscal space for a green and inclusive recovery. “

Across the world from Belize, the low-lying Pacific island nation of Fiji has seen a succession of storms in recent years that have resulted in destruction and the need to borrow money to rebuild. The pandemic has caused an economic downturn. In December, Tropical Cyclone Yasa destroyed homes and crops. Fiji debts have skyrocketed, including China and the country, whose very existence is threatened by rising sea levels, have scaled back planned climate projects, according to World Resources Institute research.

The authors proposed what they called a climate-health-debt swap, in which bilateral creditors, namely China, would write off part of the debt in exchange for climate and healthcare investments. health. (China has not said anything publicly about the idea of ​​debt swaps.)

And then there is Mozambique. The sixth poorest country in the world.

It was already fall into huge debts, including secret loans the government had not disclosed when back-to-back cyclones returned in 2019. They killed 1,000 people and left more than $ 870 million in physical damage. Mozambique has taken out more loans to cope. Then came the pandemic. The IMF says the country is in over-indebtedness.

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