‘End crippling debt’: Calls mount for global financial reform to tackle debt and climate crisis

‘End crippling debt’: Calls mount for global financial reform to tackle debt and climate crisis

Pressure is mounting for global financial reforms to help developing nations tackle climate change.

An open letter was sent to G20 leaders ahead of annual World Bank and International Monetary Fund (IMF) meetings this week. It urges them to end “crippling debt” for developing nations and introduce new measures to “make polluters pay”.

Signatories include the former Prime Minister of Denmark Helle Thorning-Schmidt, Former Prime Minister of New Zealand Helen Clark, Paris Agreement architect Christiana Figueres as well as celebrities and other influential figures.

The more than 100-strong group of actors, politicians, artists and experts say world leaders need to triple their financial support for climate mitigation and tackle “unfair debt” they say is preventing action.

“The world is rocked by conflict, food insecurity, biodiversity loss, and spiralling inflation,” reads the letter coordinated by non-profit communications agency Project Everyone.

“All of which are compounded by the devastation wrought by climate change. The Sustainable Development Goals are under threat. Too many feel scarcity, austerity, despair.”

It goes on to say that the architects of the World Bank and IMF have earned their place in history but current leaders need to continue their legacy.

“This is your chance to fulfil their promise: to transform these instruments for peace and prosperity and truly set them to work in our common interest. Triple the investment. End crippling debt. Make polluters pay.

“It’s time to taste hope again.”

A financial system fit for the twenty-first century

The letter echoes statements made by UN climate chief Simon Stiell in London last week. Stiell said that more climate finance needs to be delivered through debt relief, cheaper financing for poorer countries and new sources of international finance.

He emphasises that development banks need to be reformed to make them work better for developing countries, embedding climate in their decision-making process and building a “financial system fit for the twenty-first century”.

Simon Stiell, Executive Secretary, United Nations Framework Convention on Climate Change.
Simon Stiell, Executive Secretary, United Nations Framework Convention on Climate Change. - AP Photo/Frank Augstein

“It’s hard for any government to invest in renewables or climate resilience when the treasury coffers are bare, debt servicing costs have overtaken health spending, new borrowing is impossible, and the wolves of poverty are at the door,” the head of the UN climate agency said.

“Every day, finance ministers, CEOs, investors, and development bankers direct trillions of dollars. It’s time to shift those dollars from the energy and infrastructure of the past, towards that of a cleaner, more resilient future. And to ensure that the poorest and most vulnerable countries benefit.”

Record debt could see climate spending push countries to the brink

Record debt could prevent developing countries from taking climate action, according to a new report. Its findings only emphasise why calls for urgent reforms to global financial policy are necessary.

The Debt Relief for Green and Inclusive Recovery Project (DRGR) and Boston University found that 47 emerging nations would hit debt insolvency thresholds defined by the IMF in the next five years if they spend what is needed to hit Paris Agreement and sustainable development goals.

The report from Boston University says the $400 billion (€376 billion) these countries will pay servicing external debts - the money needed to pay the initial sum and the interest it has accrued - will render them unable to pay for climate adaption.

The countries collectively have a total population of over 1.11 billion people and they currently spend more on servicing external debt than they do on health or education.

The UN Environment Programme estimates that developing nations will need up to €343 billion each year in public finance for climate adaptation this decade.

In 2021, the last year where there is data available, just €20 billion was provided from developed countries.