Heela Rasool-Ayub’s Post

A great Tuesday morning! What a day! If you don’t know what " climate-sovereign debt doom loop" is, then this is a post for you! Not one country is on track for a 1.5C future based on 2030 national pledges for cutting emissions, according to the Assessing Sovereign Climate-related Opportunities and Risks Project. Climate risks increase the cost of debt, making debt servicing more difficult. At the same time, climate-related damages reduce fiscal space, making it difficult to secure debt financing for mitigation or adaptation policies to reduce climate risks. A doom loop emerges, with low-income countries particularly vulnerable.  What’s more, the review of 70 countries’ emissions and policies shows “no overwhelming trend” that wealthier countries are doing a better job of tackling climate change.  Investors largely agree that climate risks aren’t fully priced into markets, and academics are now studying what they’re calling the climate-sovereign debt doom loop to calculate the potential costs to countries. The 70 targeted for review make up 100% of the three main sovereign debt bond market indexes, according to the report.   The report’s authors concluded that more than 80% of wealthy countries aren’t contributing their proportional share of an annual $100 billion international climate finance goal, which was increased to $300 billion at the COP29 climate summit in Baku. Have a great debt doom loop Tuesday! https://lnkd.in/dZ7nrNRY

⚡Just in: A NEW report commissioned by the governments of Colombia, Kenya, France, and Germany lays bare the devastating effect of debt burdens for many vulnerable low-income countries. The Expert Review on Debt, Nature, and Climate reveals the extent to which unsustainable debt burdens, loss of in nature, and escalating climate change are compounding one another in a hugely destructive '‘triple crises''. Ali Mohamed, Special Envoy for Climate Change-Executive office of the President of Kenya & Chair of African Group of Climate Negotiators says: “This interim report highlights the inescapable reality that we cannot address the climate crisis without tackling the growing burden of debt. Vulnerable nations are caught in a cycle of borrowing to recover from climate disasters, further straining their economies. It’s time for the global community to come together, not just to restructure debt, but to recognize that investments in nature and climate resilience are fundamental to long-term economic stability. Our goal is to turn this vicious cycle into a virtuous one, where sustainable investments lead to prosperity and resilience, rather than debt distress.” ➡️ For more information, see the full report: https://lnkd.in/dnCiCP_w Center for Global Development, BNP Paribas, University of Massachusetts Amherst, World Resources Institute, Utrecht University, Boston University Global Development Policy Center, Inter-American Development Bank, CEB - Council of Europe Development Bank, Institute of Finance and Sustainability (IFS), Bruegel - Improving economic policy, Council on Foreign Relations, Resilient Earth Capital, Universidad de Los Andes, Universidad Internacional del Ecuador, The Liquidity and Sustainability Facility (LSF), LBBW 

The Global South is facing financial collapse. 47 highly indebted countries are at risk of insolvency if they increase their investment in climate protection and development. But if they don't, the consequences would be even worse. It is time for debt reductions! These are the findings of a recent study by the Debt Relief for Green and Inclusive Recovery Project, which you can access here ➤ https://lnkd.in/eZapHV-B #debtrelief #climate #agenda2023 #parisagreement #drgr

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

Climate negotiators are currently meeting in Bonn (#SB60) to discuss climate finance. Debt distress is restricting the ability of countries to scale up climate action. 21 former finance chiefs call for revamping the G20 Common Framework for Debt Treatment and beyond so that countries can focus on development and climate change. #COP29 #climatefinance https://lnkd.in/dW5PRiiU

Debt for Climate swaps Several African countries are pushing for Debt-for-Climate swaps to tackle climate change and debt crises. More than 20 African countries are considering halting repayment of $685 billion in debt, with the goal of swapping debt for investment in climate projects. Clearly, while this can be viewed as an answer to shake up the debt burden of debt stricken countries, the process might need to address some of the potential challenges and limitations: 1. Debt-for-climate swaps involve intricate long negotiations and structuring so the complexities must be addressed 2. Limited availability of funds for debt forgiveness and climate finance, meaning it might have scalability issues 3. Policy and institutional barriers, meaning it requires such support 4. Monitoring and evaluation ensuring effective use of redirected funds. In this context, it is desirable to consider 1. Standardizing processes👉by developing guidelines and best practices. 2. Scaling up initiatives👉Increasing participation and funding 3. Integrating with national climate strategies👉Aligning debt-for-climate swaps with country-led climate goals.

We were invited to the G20 IMF/WB Sovereign Debt Roundtable to discuss how to address the twin crises of #debt and #climate. With Maia Colodenco we argued for the need of a Sustainable Financing Strategy for the Green Transition.  The twin challenge of debt and climate crises that developing economies are currently facing requires large-scale, up-front investments that allow countries to implement a well-designed climate action to boost economic growth. Focusing solely on ex-ante and ex-post debt instruments is not enough to overcome it.  Read our paper below 👇 : https://lnkd.in/dfKRB9e5 https://lnkd.in/dBw_wz9e

According to a new report from the Debt Relief for Green and Inclusive Recovery (DRGR) Project, the world will need to spend $3 trillion a year to achieve the climate goals outlined in the Paris Agreement and the UN 2030 SDGs. #DRGR #developingnations #climategoals #SDGs #EMDE #investments #financing

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

https://lnkd.in/eMfMQrF8 "Time is running out to achieve the goals set out in the United Nations 2030 Agenda for Sustainable Development and the Paris Agreement. Not meeting these goals will have tragic impacts on the lives of present and future generations; yet, emerging market and developing economies (EMDEs) are facing conditions that inhibit their ability to mobilize investment, including historic levels of external debt, higher interest rates and low growth prospects to 2030."