V20 finance ministers urge debt financing reform for climate-vulnerable nations

April 29, 2024|Written by Moriah Costa

Finance ministers from the Vulnerable 20 (V20) group of countries urged the G7 and G21 to reform the international financial system so developing countries can access financing to meet their climate goals.

New financing should be on concessional terms, with the weighted average cost not exceeding medium-term GDP growth rates, while multilateral development banks should issue local currency financing and refrain from high-risk premiums.

“High levels of external sovereign debt and debt service across the V20 economies are crowding out the ability of governments to make the investments required to achieve their climate change and development goals,” the group stated after meeting on the sidelines of the International Monetary Fund (IMF) and World Bank spring meetings in Washington DC earlier this month.

The group also called for the G21 – which adds the African Union to the G20 – to overhaul the common framework to include inclusive participation and increase the disbursement of funds, as well as tailor interest rates so they are more affordable for vulnerable nations. They also called for debt relief in exchange for investments in green projects, as well as rechannelling special drawing rights to support climate-vulnerable countries.

The V20 is a group of finance ministers from the Climate Vulnerable Forum and represents 68 climate-vulnerable countries focused on financial reforms and advocacy. Despite a population of 1.74 billion people, or 21.5% of the global population, they only account for 4% of global emissions.

A 2022 report from the forum found that V20 countries lost around US$525bn from 2000-2019 due to climate change.

“In other words, the V20 economies and their people would have been 20 percent wealthier today if not for climate change,” the V20 group stated.

High debt levels in the V20 economies are making it difficult for governments to make the investments they need to address climate, while climate change is increasing the costs of borrowing “which only fuels a vicious debt cycle where no one wins”.

Developing countries in the V20 face crippling debt, with external debt servicing expected to rise to USD$122.1bn in 2024. If 18 of the 20 countries in the V20 continue to borrow as they have, it will be unsustainable, the group of finance ministers said.

Meanwhile, the chair of the V20 and minister for finance of Ghana, Mohammed Amin Adam, urged central bank governors to integrate climate risks and opportunities into their monetary and financial regulation policies.

“Our central banks are uniquely positioned to lead this transition by embedding climate risk assessments into our macroeconomic frameworks,” he said in his opening remarks.

The IMF and World Bank spring meetings ended without a clear strategy to get the funds needed to combat climate change for poorer nations, even as 11 countries pledged to contribute US$11bn to tackling climate change and other global issues.

Financing climate change is expected to be one of the top issues at the upcoming Cop29 conference in Azerbaijan in November.

This page was last updated April 29, 2024

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