Coronavirus debt crisis undermines climate change finance

World leaders promised more support to protect vulnerable countries from the ravages of climate change at a global online summit Monday — but a growing COVID-19 debt crisis threatens to sweep those efforts away.

At the meeting convened by the Netherlands, leaders of wealthy nations said while cutting emissions remained vital, more must be done to tackle the consequences of global warming, especially in communities with few financial resources.

“We have to show … that there is a form of solidarity that is real and credible,” said EU Green Deal chief Frans Timmermans.

The global summit came on the same day that EU foreign ministers committed to increase finance to help poorer countries live with the changed climate.

U.S. climate envoy John Kerry told the Dutch summit that his government intended to “significantly increase” finance for adaptation. French President Emmanuel Macron said a third of French climate finance would be earmarked for such efforts.

But many of the countries most exposed to rising seas and extreme weather have seen their balance sheets derailed by the economic upheaval of the pandemic. Debt, and the risk of default, is making it harder for them to access finance for sea walls, drought-resilient crops, cooling systems for buildings or cyclone warning systems.

The world’s leading development brass are now searching for a sweeping solution that encompasses climate change, debt relief and pandemic recovery.

“When we take these two things — the impact of the pandemic and looming climate crisis — together, it is so clear we need a new global compact in which we step up support,” said International Monetary Fund chief Kristalina Georgieva.

“This is absolutely a history-making opportunity,” said Rachel Kyte, dean of the Fletcher School of Law and Diplomacy and a former U.N. special representative for sustainable energy.

Out of a grouping of 48 countries considered especially vulnerable to the impacts of global warming, more than half are low-income nations rated at moderate to high risk of debt distress by the IMF in December. 

They “need grants, concessional financing, and those that are under huge burden of debt, they need debt restructuring,” said Georgieva, adding that debt relief should also be part of the solution.

Alok Sharma, the U.K. president of this year’s COP26 global climate talks, met with Georgieva to discuss a way to combine debt relief, post-COVID economic stimulus and climate measures, according to two people familiar with the conversation. 

U.N. Secretary-General António Guterres told the conference that debt relief instruments would be necessary. “Recovery cannot only be for the developed world,” he said.

At the conference on Monday, the leaders of major economies promised more money, but said little on debt. That’s not what poorer countries wanted to hear.

Coronavirus impact

In Angola, the economic impact of COVID has been “so profound” the country faces a decade of simply rebuilding the most basic services, such as education and health care, said Giza Gaspar-Martins, the country’s top climate change civil servant.

He said a “host of projects” that could have cut carbon emissions and built resilience to climate change have been a “direct casualty of the emergency and the slowdown brought about by COVID.”

Meanwhile the parliament of Angola, which is one of Africa’s largest oil producers, will soon debate a bill that proposes opening conservation areas to mineral and oil exploration. 

Angola isn’t the only country facing that diabolical choice, said Gaspar-Martins. “There is activity all over Africa, new [oil and gas] projects that are being looked at, at the time when we thought those were going to become stranded assets.”

Despite some relief under a G20 deal last year, Angola has been hit with credit downgrades, making it more expensive to borrow, and remains at risk of defaulting on its loans, according to Fitch Ratings. Countries with a history of government corruption, such as Angola and Gabon, face even greater difficulties convincing creditors to extend relief to them.

Ali Bongo Ondimba, the president of Gabon, said that “COVID-19 is eroding our developmental gains,” and worsening the climate crisis.

“It would be interesting,” Gaspar-Martins suggested, that if “projects could be demonstrated to be specifically aligned with climate action, that those debts were simply written off.”

That’s a difficult argument to make as the world’s wealthiest governments face their own economic crises, which they are battling with vast increases in public spending. The U.K. recently disturbed developing countries by slashing its overseas aid in the face of budget pressure at home.

Guterres argued it makes sense for rich donor countries and development banks, in particular, “to significantly increase the volume and predictability of their finance,” saying that recovery from the pandemic would require “trillions of taxpayers’ dollars” to “jump start the low-carbon, high-resilience future we need.”

The massive recovery programs in developed countries show the “money is there,” said Andrea Meza, the environment minister of Costa Rica. She suggested that poorer countries could swap debt for decarbonization to “give us some oxygen at the national level to continue the transformation.”

She also said that developing countries “need a lot of grants” instead of loans. In 2018, just $12 billion out of $78.9 billion in climate finance came in the form of grants, according to the OECD.

Climate change and debt need to “be solved as one issue,” said Kyte. But “there’s a lot of climate finance people who are either not wanting to focus on debt, trying to avoid it or pretend like it’s not as serious an issue as it is.”

There’s also a need to better direct spending toward adapting to climate change instead of pouring money into renewable energy projects, which are easier to finance as they generate revenues.

“We need a five to 10-fold increase for funding in adaptation, just in the developing world, and yet only a tiny fraction of the trillions of dollars in economic stimulus funds are so far being earmarked for climate adaptation. That we have to increase,” said Ban Ki-moon, the former United Nations secretary-general who now co-chairs the Global Center on Adaptation.

Much will depend on the willingness of big creditors: including the EU, U.S. and China. Europe would “have to … be prepared to explore” debt relief, said Jacob Werksman, international climate adviser to the European Commission.

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