How debt cancellation could help poor nations prepare for climate change

As the planet heats, more crises are threatening poor countries and causing humanitarian disaster. The developing world is at greatest risk due to global warming. This includes rising sea levels and more severe storms. Many of these countries are also facing crippling debt that makes it difficult to prepare for and recover after natural disasters.

A prime example is Eritrea, whose gross public debt is projected to exceed 160 percent of its GDP this year, causing the African Development Bank Group to label the country “in debt distress.” This debt may sap funds away from much-needed measures to adapt to Temperatures rise above global average, extreme drought and famine conditions such as those that are The Horn of Africa is currently in turmoil. 

Without urgent action, experts warn of a “doom loop” of deepening debt and deteriorating environmental conditions. A Climate and Community Project releases a new report — a coalition of academics and policy experts working to advance climate justice — urges the United States and European countries to provide immediate relief through a program of “climate reparations,” including through large-scale debt cancellation and restructuring. Even though they have contributed just about 5%, the least developed countries have made a significant contribution. 8 percent of the planet’s greenhouse gas emissions since 1850They are poised to You bear the brunt of climate change’s devastating impacts. 

According to the report, written by Georgetown University philosophy professor Olufemi Táíwò and the Climate and Community Project’s research director, Patrick Bigger, the developing world’s current debt crisis has its roots in colonialism and slavery. These practices funneled labor and resources away from the Global South — countries in Latin America, Asia, Africa, and Oceania — and gave the Global North a head start on economic development that left the rest of the world behind. Global South countries are forced to borrow money to meet their basic needs. This money — which may be provided in the form of interest-bearing loans or bonds — comes from governments like the United States, multilateral lenders like the World Bank or the International Monetary Fund, or private lenders, like a wealthy individual or company.

Borrowing money provides poor countries with the funds they need to avoid an immediate disaster like famine or to purchase enough oil to keep their homes warm. However, these arrangements can trap borrowers with a debt burden which binds them to creditors over the long-term. 

The report’s top priority is for wealthy governments and multilateral organizations to cancel poor countries’ publicly held debt — a proposal that Táíwò and Bigger say is relatively simple and politically possible. According to their analysis, 19 of the world’s 20 most climate-vulnerable countries owe most of their debt to public or multilateral lenders that can easily choose to write off debts. Doing so could quickly free up fiscal space for the developing world to invest in climate adaptation and fossil fuel-free development — especially as many countries’ capacity to make those kinds of investments has been strained During the COVID-19 pandemic. In 2020, low- and middle-income countries’ public and private long-term debt Record $860 billion, an increase of 12 percentSome climate-vulnerable countries like Cabo Verde and Jamaica saw their long-term debt to GDP ratio soar to as high as 80%. 96 percent.

There have been efforts from the G20 — an intergovernmental forum of 19 wealthy countries and the European Union — You can suspend some of the debt, but the Climate and Community Project report calls them “catastrophically insufficient,” arguing that they have not gone far enough and have sometimes included austerity stipulations — for example, requiring that countries cut public sector wages. 

A better policy, Táíwò and Bigger argue, should include the immediate cancellation of all publicly held debt with no strings attached, giving debtor countries the agency to choose how they might allocate their newly available resources. 

The report is a good example of this. Initiative for Poor Countries with High IndebtednessThe effort began in 1996. The International Monetary Fund and a small group of wealthy creditor nations eventually wrote off more debt than $70 billion for 37 countries in the emerging world. This reduced their debt repayments by 1.5 percent between 2001 and 2015. An independent analysis for the World Bank found that the write-offs allowed 28 of the participating countries — including Burkina Faso, Niger, and Ghana — to increase “poverty-reducing expenditures” From 6.4 percent of the GDP in 1999 to 8.1% in 2004.

Bigger says this is a sign debt cancellation works. “Every dollar spent servicing debt is a dollar not spent on other public policy priorities,” he said.

Canceling publicly held debt wouldn’t solve the entire problem, though, since private lenders hold a large and growing fraction of the developing world’s debt claims. Private creditor-owed debt was at an eye-watering level as of 2020 $2.2 trillionThe amount owed to multilateral development bank like the World Bank is $792 billion. Private lenders are often reluctant to participate in debt cancellation programmes, so many privately held debts would have to be acquired by sovereign or multilateral lenders to be written off. 

Bigger also noted that debt cancellation is less politically visible today than it was in the late 1990s, when a number of high-profile activist campaigns were centered around the Global South’s simmering debt crisis.

Some of today’s largest debt relief programs are spearheaded by big environmental nonprofits and involve conservation stipulations. The Nature Conservancy’s Blue Bonds for Conservation program, for example, Facilitated the restructuring of Belize’s sovereign loans in 2020 that reduced the country’s total debt burden by $250 million and allowed it to repay its remaining debt at a lower interest rate — as long as the savings would be used to protect 30 percent of its ocean territory. A larger, but similar effort was made. 2016 Seychelles – negotiated.

Lee Buchheit, a lawyer who has represented several countries in sovereign debt restructurings, including Belize, said this model allows countries to contribute to the “global conservation project” despite being in financial straits. While these programs are meant to ensure the savings are put to good use, some say that so-called “debt-for-nature” swaps can undermine a country’s agency to make their own choices about what they need.

“If an organization really takes seriously the idea that environmental decline is interwoven with global inequities … they might not want to put all their efforts in the basket of restructuring and look instead toward reparations,” said Jennifer Silver, an associate professor of geography at the University of Guelph in Ontario, Canada.

In addition to debt cancellation, Táíwò and Bigger call for a rapid increase in climate finance from the Global North. Currently, the rich have committed to providing $100 billion annually for climate projects for the developing world. They only give $80 billion. According to the Climate and Community Project, the annual figure should be closer at $1 trillion. It also calls for fines from the fossil fuel sector to be collected in courtrooms around the globe and deposited in a trust account that can be used in vulnerable communities in the Global South.

Bigger believes that these actions should not be seen as an opportunity for rich nations to repair past harms but to ensure the developing world can pursue low carbon and climate-resilient growth, bracing itself for a future climate crisis it did not cause. “We need to think about the ramifications of how we decarbonize and what we owe to the rest of the world,” he said.