A looming debt crisis in emerging economies poses a significant threat to climate adaptation and sustainable development efforts, according to a report released ahead of the IMF/World Bank spring meetings.
The report, issued by the Debt Relief for Green and Inclusive Recovery Project (DRGR), highlights that emerging nations are set to pay a staggering $400 billion to service external debt this year. Alarmingly, 47 of these countries risk default within the next five years if they divert funds towards meeting climate goals outlined in the 2030 Agenda and the Paris Agreement.
Kevin Gallagher, director of Boston University’s Global Development Policy Center, warned that these countries would face severe debt distress if they attempted to secure the necessary financing for climate initiatives under the current debt environment, Reuters news report said.
A significant portion of the at-risk nations, including Senegal, Nigeria, and Kenya, are situated in Africa. Additionally, 19 developing countries lack the liquidity to meet spending targets without external assistance, though they might not immediately approach default thresholds.
The DRGR report advocates for a comprehensive overhaul of the global financial system, urging debt forgiveness for the most vulnerable nations and an increase in affordable financing options.
Kevin Gallagher emphasized the urgent need to mobilize capital and reduce the cost of financing for countries to stand a chance at achieving their climate objectives.
The DRGR Project, a collaborative effort between Boston University Global Development Policy Center, Germany’s Heinrich-Boll-Stiftung, and the Centre for Sustainable Finance at the University of London’s School of Oriental and African Studies (SOAS), underscores the necessity for the International Monetary Fund to revise its debt sustainability calculations.
The IMF’s assessments play a crucial role in determining the extent of debt relief for defaulting nations. However, the DRGR report contends that the IMF’s current approach fails to account for climate spending needs and necessary buffers against various shocks, including climate disasters, economic downturns, and pandemics.
The report cautions that failure to act swiftly and comprehensively by providing debt relief, liquidity, grants, and concessional development finance could lead to exorbitant costs of inaction.
GreentechLead.com News Desk