Thursday, April 22

World Bank, IMF consider linking debt relief to climate efforts


The new initiative would focus on ‘systematically changing whole economies,’ a source tells Reuters.

The World Bank and the International Monetary Fund (IMF) are planning to launch a platform to advise poor countries on funding climate and conservation activities, amid a broader push that could link such spending to debt relief, according to a draft document seen by the Reuters news agency.

The institutions’ discussions towards that goal are detailed in a World Bank paper on debt published on the bank’s website on Monday for their annual northern hemisphere spring meetings.

The advisers would include United Nations officials, non-governmental organisations, private investors and even ratings agencies with expertise in sourcing investment, including grants, low- or no-interest loans and conditional debt relief, the document says.

The initiative reflects a growing recognition that the economic turmoil of the COVID-19 pandemic has exacerbated budget constraints and debt challenges that hamper the ability of some countries to transition to clean energy, protect wildlife or make infrastructural changes to prepare for climate impacts.

“Unlike other initiatives out there that focus on one project at a time, this will focus on systematically changing whole economies,” one source familiar with the initiative told Reuters, adding that the platform aims for a more holistic approach to “the triple crisis of debt, climate change and biodiversity loss.”

In a February interview, World Bank President David Malpass raised the possibility of linking debt relief with investments to combat climate change and reduce fossil-fuel emissions but provided no further details.

Green, resilient, inclusive

It said they are developing an “organizing framework” for connecting debt relief to countries’ plans for investing in “green, resilient and inclusive development,” or GRID – the bank’s newest catchall acronym.

“For countries that are close to their debt limits, financing GRID will require sufficient grants and concessional lending which could be augmented by conditional debt relief or reprofiling,” the joint paper said.

The UN estimates that more than two million Ethiopians have been displaced by fighting in the country’s Tigray region, worsening Ethiopia’s humanitarian and debt crises [File: Mohamed Nureldin Abdallah/Reuters]

The World Bank estimates that more than 30 of the world’s poorest countries are in or at high risk of debt distress. Three of them – Chad, Ethiopia and Zambia – have requested a restructuring of their debts under a common framework agreed last year by China, the world’s largest bilateral creditor, and other Group of 20 large economies with the Paris Club of official creditors.

Last month, a separate technical working group began working on the new Debt/Climate/Nature Platform. It will allow public and private sector experts to provide technical assistance and data to countries about possible investments and help them find public and private funding, the paper said.

A second source told Reuters that the planning was still in the early stages but the goal was to launch the platform late in 2021, with a secretariat to be hosted at the World Bank.

“If unaddressed, or approached in ways that do not take into account macroeconomic vulnerabilities and debt sustainability constraints, climate change and nature loss represent a systemic risk to the global economy,” the paper says.

The platform, however, would not replace debt treatment talks under the Group of 20 common framework, the document said. Instead, it could provide advice for how to proceed after any debt relief was agreed.



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