Bank for International Settlements, Basel © Wladyslaw Sojka
The path towards green transition could increase the debt-to-GDP ratio of countries, along with other factors as “the long-term outlook is grim”, the Bank of International Settlements has said in its annual economic report.
Public finances are likely to come under pressure from several factors, including “the commitment to supporting a transition towards a sustainable global economy in response to climate change”.
“Even under favourable assumptions, without sustained and firm consolidation efforts, debt-to-GDP ratios are set to rise relentlessly, threatening safety margins. The looming additional burdens linked to ageing populations, the green transition and geopolitical tensions complicate the picture further,” the report stated.
As the threat of climate change has increased, some countries like Sri Lanka are exploring debt-for-nature swaps to help tackle its economic and climate issues. Meanwhile, the International Monetary Fund’s managing director Kristalina Georgieva said climate finance is lacking for low-income countries and called on world leaders to consider debt-for-climate swaps.
While the annual report mostly touched on the effects of inflation over the past year and did not mention green finance, it did highlight opportunities for growth. Although the BIS noted its concerns about the impact of transition on debt, green transition and the advance of artificial intelligence could also “provide a much-needed push to productivity in many countries – provided that the right policies are in place”.
In addition, the BIS report noted the role that central bank digital currencies can have in creating a unified ledger. It used the example of Project Genesis to show how tokenised assets can help facilitate investments in green finance. The green bond platform is a blockchain-based prototype developed by the BIS and the Hong Kong Monetary Authority to issue green bonds and allows retail investors to trade and track the bonds’ environmental impact.
A group of climate activists met with Louis Silva da Pereira, deputy secretary of the BIS, on 20 June ahead of the financial body’s annual meeting, to voice their concerns that central banks are not doing enough to stop climate change. The group asked the BIS to consider putting in place more capital requirements for fossil fuel projects financed by banks and gave da Pereira a petition of over 54,000 signatures asking the regulator to put in place rules to help with a just transition.
This page was last updated June 28, 2023
Written by
Moriah Costa is the Editor-in-Chief of Green Central Banking and has over a decade of experience writing about banking and finance. She is an award-winning American journalist based in Paris and has written for major international publications, including Reuters, The Guardian, and S&P Global. Having grown up in water-stressed Arizona, she has always had a strong interest in bringing awareness to climate and environmental issues.
