Daniel Cash’s Post

Yesterday at #COP29 the World Bank announced that it was expanding its Climate Resilient Debt Clauses to include droughts and floods. However, the IMF is yet to announce debt pause clauses for its financing arrangements. But, it already has an instrument called Catastrophe Containment and Relief Trust that can provide debt relief to countries. Marina Zucker and I wrote up a policy brief on how the IMF could sell just 4% of its gold reserves to replenish the Catastrophe Containment Relief Trust https://lnkd.in/gc35bt6b More $$$ alone won't be enough though. More countries also need to be eligible to actually access the CCRT. Reuters summary of the brief here: https://lnkd.in/g5ZM9qvC

It is well known that many countries are already saddled with high levels of debt and cannot afford to enter into more loan agreements. In fact, 34 out of 59 emerging economies that are the most vulnerable to climate change also face a high risk of financial crises in the next two years. Therefore, multilateral institutions are working (albeit slowly) to diversify ways of easing the debt burdens of these emerging countries. This is where debt-for-nature swaps may be able to help.

Some of the world's poorest countries are spending a lot more on debt repayments than they're getting in climate finance. And it's getting worse. New figures from International Institute for Environment and Development (IIED) show that in 2022, the 58 countries in the analysis spent US$59 billion servicing their debts compared with the $28 billion they received in climate support. (It's worth pointing out that about half the climate finance is provided as loans, not grants). Every time these countries are hit by a climate disaster (think Hurricane Beryl tearing through the Caribbean, or devastating flooding in Bangladesh), they're forced further into debt, meaning they have less money to invest in climate resilient infrastructure. And many of these countries are the same ones who've done the least to contribute to climate change. This is why International Institute for Environment and Development (IIED) believes that debt/finance and climate are two issues that need to be dealt with together. Read more ⬇️

The Task Force on Climate, Development and the IMF published its recommendations on how to enhance IMF/WB Low Income Country Debt Sustainability Framework. Our top line recommendation is to capture climate risks and growth enhancing effects of climate investments. We also make recommendations on improving data, scenario design, the role of macro-financial models, and why a risk management approach can help us get serious about possibly high impact risks. https://lnkd.in/dRHSDSKd Tim Hirschel-Burns and I wrote up a blog to answer some questions on why the debt sustainability analysis matters for climate change and development https://lnkd.in/dhtU_GgP

Emerging Market and Developing Economies (EMDEs) are facing a dire financial predicament that could jeopardize the global pursuit of the United Nations 2030 Agenda for Sustainable Development and the @Paris Agreement. A new report by the Debt Relief for a Green and Inclusive Recovery (DRGR) Project reveals that a significant number of these economies might become insolvent within the next five years due to their efforts to ramp up investments to meet climate and developmental goals. Read Dr. Edward Mungai's analysis of this. https://lnkd.in/d9EwjYKY

Fifty-eight emerging economies or countries in the global south spent US$59 billion repaying debts in 2022 compared with US$28 billion they received in climate finance! "…Of the US$28 billion provided in climate finance in 2022, just over half (US$14.8 billion) was provided as loans rather than grants". In 2021, 58 emerging economies paid US$33 billion on debt servicing and received $20 billion in climate finance in the same year, this does not make sense! See: https://lnkd.in/ep2GuwgJ Let this sink in! I know many of you are not comfortable with hearing this truth, but it has to be told. Justice isn’t justice if it does not address the ills of the past. When seeking to build an equitable and just world, we cannot focus only on the present; we have to pay attention to how the past influences the present. In my view, this is the logic of asking developed countries to finance emerging economies' efforts to mitigate the impact of climate change. Since 2009, the developed countries agreed to provide US$100bn a year by 2020 to help poorer countries mitigate the impact of climate change, but this was never met!. See: https://lnkd.in/eaM96Ee7 Regardless of your position, we cannot continue this colonial injustice, where loans are disguised as aid rather than grants. This inevitably means that the MOST developed nations are aided by the world's least developed nations while the former continue to shy away from making amends for their injustices. The impact of climate change is very much upon us, and if we are to be close to reversing the trend, then the wealthy nations must pay up!

"During the meetings, new pledges of $11B were made to make the World Bank bigger and boost three of its initiatives (the eight Global Challenges Programmes, hybrid capital, and the Liveable Planet Fund). Not only is this amount peanuts compared to what is required under reparative and climate justice; as long as those are debt creating instruments, where the driving question is whether private financiers can profit rather than whether it will actually help people and planet, these initiatives will remain doomed from the start. "The World Bank cannot become bigger before better. A true reform would mean stopping seeking profit-based approaches to attract private sector to the climate space, when we know that private finance is limited for mitigation, neglects adaptation, and is completely inadequate to address loss and damage. A true global reform of IFIs should prioritise grant-based finance, provide measures to increase the fiscal space in the Global South, end their large financing for fossil fuels, and change their governance structures to enable more voice and participation from the Global South." —Joab Okonda, Pan-Africa senior advocacy advisor at Christian Aid ----------------------- **Should we use potential profits to attract the private sector into backing climate finance?** There's an old view of value creation, measured in profit, vs. a more enlightened view based on shared, universal value — harder to put in numbers but far more powerful. Does that mean we shouldn't try to attract the private sector with profits? They can be a major force of momentum, but does it backfire if we lock developing countries in debt? Is there an approach where we offer moderate, long-term profits, allowing countries to get the funds they need without crossing the line into dangerous debt? https://lnkd.in/dR-vmwfi --Related-- IMF, Oct 2022: https://lnkd.in/dXsTSSgn IMF, Oct 2023 (see page 16): https://lnkd.in/dUjADA5V #climatejustice #climatediplomacy #climatefinance #IMF #WorldBank

The International Monetary Fund’s macroeconomic frameworks are falling short in addressing climate and nature-related factors, leading to misaligned policy advice and investment strategies for the global south. This is a key finding of a consultation paper by system change consultancy Systemiq Ltd. Despite recent IMF updates to its debt sustainability analyses, the paper argues that more comprehensive changes are needed to prevent these changes inadvertently worsening debt unsustainability in climate-vulnerable economies. GreenCB.co/41g2dxG #ClimateJustice #debt

As The World Bank and International Monetary Fund gather for their spring meetings Saliem Fakir, Executive Director of The African Climate Foundation warns against a false dichotomy: whether to finance development, or to invest in transitioning developing countries to net zero. Read the full story >> GreenCB.co/3PZotoU #WorldBank #IMF #JustTransition #ClimateChange

“Last week, the Dutch central bank released a study that concluded that “[s]ince 2020, a clear price difference has emerged between the costs of borrowing for companies with relatively high carbon emissions and those with lower (or no) carbon emissions . . . . [t]he difference has [] widened to over 40 basis points (0.4%).” The implication of this divergence is clear: “companies with lower emissions can finance their operations at lower costs.” The Dutch central bank suggested that this development was attributable to “the implementation of stricter European climate policies,” including “the European Green Deal in December 2019, [and] new climate legislation in 2020.” In essence, the research study suggested that the market was beginning to internalize the legislative and regulatory agenda of transitioning to a green economy by assigning a risk premium to carbon-intensive activities. In short, this was a (partial) victory for those interested in combatting climate change through influencing the behavior of market participants through government action creating meaningful (dis)incentives.”