Sustainable climate finance for the global south is severely lacking and world leaders should consider debt-for-nature swaps during an upcoming international summit, the International Monetary Fund’s (IMF) managing director has said.
Kristalina Georgieva, who was previously chief executive of the World Bank, made the comments ahead of a major summit in Paris to discuss a new global financial pact, covering climate, debt relief and development. Hosted by Emmanuel Macron, the attendees, including more than 50 world leaders, will consider how to expand sustainable climate finance for the global south.
Speaking to the Guardian, Georgieva said: “Vulnerable countries hit by the impacts of climate change need urgent assistance to be able to address new pressing needs, while remaining able to to meet their obligations [on debt repayments].”
In a high interest environment, “timely debt relief is essential” for countries suffering from extreme weather, she said, adding that debt-for-climate swaps could be an effective tool for improving climate and financial resilience.
Debt-for-nature swaps help countries to restructure their sovereign debt while also addressing climate issues. They allow countries to erase their debt in exchange for nature and climate conservation programmes, such as decarbonisation, forest protection or investment in climate-resilient infrastructure. One example is the Seychelles’ blue deal in 2015, which wiped off nearly US$22mn of debt in exchange for action on ocean conservation and described in a Commonwealth Secretariat report as “very successful”.
The Paris summit is expected to explore possible reforms to the World Bank and the IMF, as well as a global tax on shipping to raise money for countries worst hit by climate loss and damages. Georgieva also recommended that finance be provided in local currencies as a quick, simple and less politically fraught way to bring down borrowing costs.
Civil society groups such as Oxfam are calling for financing by grants rather than loans, arguing that the countries least responsible for climate change should not have to foot the bill. They also say costs are particularly disproportionate for states already bearing unsustainable debt.
Other groups have noted that with debt and costs for low-carbon technology priced in foreign currencies, the problem is compounded by fluctuating exchange rates and costs.
Georgieva defended the use of loans alongside grants but emphasised that climate lending should be economically sustainable. “As much as possible, climate finance in the form of grants of course helps,” she said. “But long-term concessional finance also helps. Loans can create better prospects for sustainable growth, if the money is used to drive economic productivity.”
Georgieva also highlighted the increasing prioritisation of climate within the global south, saying it is no longer perceived to be “a rich countries’ agenda”. The presidents of 16 African countries, including Nigeria’s president Bola Ahmed Tinubu, will also be attending the upcoming summit.
This page was last updated June 22, 2023
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