Climate-threatened nations are putting forward an increasingly stark message to earn the attention of the world’s major lenders.
Their latest push came amid annual meetings of the World Bank and International Monetary Fund, when Mohamed Nasheed, former president of the Maldives and an ambassador for the Vulnerable 20 Group, or V20, warned that those countries could stop payments on half a trillion dollars in debt if lenders don’t embark on reforms to the global financial architecture.
“We are living not just on borrowed money but on borrowed time, and that time is running out,” Nasheed said in a speech Sunday at the start of a meeting of V20 finance ministers.
At the end of that meeting, officials issued a statement calling for sweeping reforms to lending, climate finance and insurance facilities, as well as support of green growth plans they’re developing.
Those calls are part of a growing push for reforms that highlight heightened frustrations among countries crushed by the weight of unsustainable debt, weakening currencies and increasingly devastating climate-fueled disasters.
They come just weeks before annual climate negotiations, where the need for finance and unmet pledges to provide it will be on the table. Multilateral development banks are also facing wider pressure, including from major shareholders, to overhaul their lending practices to get more money flowing to countries on the front lines of the climate crisis (Climatewire, Oct. 7).
Nasheed’s warning was a way of impressing on the IMF and several of the wealthy nations in the room just how dire the situation is, said Joe Thwaites, a climate finance advocate at the Natural Resources Defense Council who attended Sunday’s ministerial.
“They’ve tried lots of other approaches. But it is three years into the pandemic and decades into the climate crisis,” he said. “I think a lot of countries are reaching a point where they’re extremely frustrated at literally decades of broken promises.”
There are signs that message is gaining traction.
IMF Managing Director Kristalina Georgieva thanked Nasheed “for his call for us to wake up and face reality.” And she outlined ways the IMF is bringing climate change into its operations, including through a new trust that aims to provide low-interest, long-term financing to developing countries.
She was also receptive to the idea of swapping country debt for investments in climate resilience.
“We have to find a way to link two problems with one solution, and the problems are climate and debt,” she said. “The solution: debt for climate swaps.”
But Georgieva cautioned against rushing into anything too quickly.
“Let’s not, in the desire to show we’re making progress, make progress in too small steps to be meaningful,” she said.
The debt crisis = the climate crisis
The Group of Seven and other rich nations have also gotten more involved in conversations about how to increase climate finance and pay countries for climate damages for which they bear little responsibility.
Last week, the V20 and G7 came to an agreement on a facility for climate risk that they’ve dubbed the Global Shield, which would improve insurance and social protection schemes to better respond to disasters.
For Sara Jane Ahmed, a finance adviser to the V20, having a platform to speak to major economies and financial institutions at once was important.
“I think the message was clear: The debt crisis is the climate crisis. And we need the financial architecture to deliver better for vulnerable countries,” she said.
What that amounts to remains an open question. Ronan Palmer, who runs the clean economy program at climate think tank E3G and attended the annual meetings, said he heard a lot of warm words but saw little action.
There is a lot of frustration about debt relief programs, he said. Within the V20 that frustration may be compounded by the fact that many of its members have an offer to make in the form of climate prosperity plans, effectively procurement plans for a cleaner economy, said Ahmed.
There also remains a lot of finger-pointing when it comes to dealing with the debt burden, Thwaites said.
“We’ve certainly got acknowledgment that this is a serious problem,” he said. “We’re not at the stage where there are actually solutions on the sort of coordinated scale necessary.”
‘Dominos of default’
The V20 is working to address a crisis that individual finance ministers may be reluctant to take on out of fear it would further harm their ability to draw in much-needed financing, Nasheed said.
But it does need to be addressed — and urgently.
In his speech, he painted a picture of a country where entire islands are consumed by waves, destroying roads, bridges and other vital infrastructure and strangling economic development.
Collectively, the nearly 60 countries that comprise the V20 have lost a fifth of their wealth over the past 20 years due to climate-fueled shocks and disasters, according to research the group commissioned.
It’s not just small island nations that are vulnerable to a warming planet. The V20 represents 1.5 billion people, including the Maldives and Vanuatu, but also much larger economies such as Bangladesh, Kenya, the Philippines and Vietnam.
Nasheed’s address turned attention to a system that has worked against climate vulnerable nations, many of which are ineligible for low-cost loans because they’re considered high risk or middle income. Failing to ease that debt burden could lead to “dominoes of default,” creating a bigger problem for creditors than debtors, he said.
Unlike IMF head Georgieva, World Bank President David Malpass did not attend the V20 meeting, an absence that some observers said was notable.
The bank’s climate lending has come under scrutiny following comments by Malpass last month that cast doubt on the role fossil fuels play in causing climate change. But the bank and Malpass do seem to have gotten the message.
In various speeches during last week’s annual meetings Malpass pointed to the need for more grants and low-interest loans for the poorest countries and solutions for unsustainable debt.
“Looking ahead, the Bretton Woods institutions will need to consider their roles, governance and capital structure and evolve to address climate change and global public goods,” Malpass saidin a speech.
Having the V20 as an official group among the IMF and World Bank would be one step in that direction, said Ahmed, since it would allow them to provide perspective from the climate front lines to help guide future policy.
For the Maldives and other vulnerable countries, the climate crisis is already on their doorsteps, she added. “It’s time that there’s actually a way forward.”