Growing debt burdens hinders the fiscal capabilities of developing countries for whom additional debt often means reduced government spending in the public sector. Given the impacts of climate change, the consequences could be further exacerbated by worsening climate conditions. How can we achieve climate justice?
At the onset of COVID-19, governments in developed countries were able to provide financial support to mitigate the worst economic effects of the pandemic. For sub-Saharan Africa, World Bank data showed that the average daily median household income dropped by over 11 per cent; from 2.55 dollars a day to 2.2 dollars. It is also worth noting that these figures were projected to plummet by 7 per cent due to severe economic conditions. As such, the pandemic only worsened a poverty crisis brought about by a legacy of poor fiscal discipline and harsh austerity policies.
Many countries in sub-Saharan Africa are indebted to global powers and institutions, having amassed significant budget deficits ahead of the pandemic. This hampered their ability to procure urgent financing needed to respond to COVID-19. In response to these fiscal difficulties, the World Bank and the International Monetary Fund provided a debt moratorium called the Debt Service Suspension Initiative. The initiative, introduced in May 2020 and expired in December 2021, was designed to allow countries hamstrung by the pandemic to procure additional loans. For example, Nigeria secured a $3.4 billion loan.
During the first wave of the pandemic, payable loans provided by multilateral development banks financed these countries. Though the rates supplied were relatively low and emergency financing was needed to acquire vital pandemic response equipment, these loans exacerbated a prevailing debt crisis that cuts in government spending. Debt restructurings— reducing principal payments and thereby elongating the duration of loans—were implemented following the expiration of the
THE CLIMATE DEBT CRISIS
A parallel crisis persists in the form of the climate emergency which the most significant difficulty we face today. debt remains a significant deterrent for government spending in climate adaptation and mitigation. Developing countries, on average, spend as much as 40 per cent of their revenues to service their debt. In fact, between 2015 and 2017, about half of the African countries had debt-to-GDP ratios above 50 per cent.
Global climate finance figures reveal that over 70 per cent in funding was provided via debt, a figure projected to grow. As part of the Paris Agreement, developed countries agreed to provide $100 billion annually up until 2025 in climate finance to the developing world, who grapple with the harshest consequences of a warming planet. These efforts have, so far, fallen short of this target.
Financing is required by much of the developed world for necessary climate adaptation and resilience infrastructure and as with the pandemic, developing countries—already bound to tight budgets, will struggle to meet climate financing requirements. This is because from institutions such as the IMF have had to follow the mandated fiscal policies that limit their spending power. Policy studies note that since 1980, Structural Adjustment Programmes have been imposed on 36 of sub-Saharan Africa’s 47 countries, scholars have accepted that these austerity policies have dire effects, including slower economic growth.
As such, it is integral to shift away from the practices of mainstream institutions like the IMF to an agenda that conceptualizes the climate crisis as a global commons initiative and urges developed nations to provide climate debt relief. Already, there is a growing advocacy campaign for climate-related debt relief for developing countries as activists argue that relief is more akin to reparations; that colonial legacies have hampered the development of countries of the global South, compounding the effects of climate indebtedness.
CLIMATE-RELATED DEBT FORGIVENESS
Historically, climate-related debt forgiveness manifested as market-oriented mechanisms called debt-for-nature swaps. These debt restructuring methods were proposed as early as the mid-80s, with the pilot program being implemented in Bolivia in 1987. However, debt-for-nature swaps are not debt-forgiveness provisions; they often occur with sovereign loans at a high risk of default.
In this instance, creditors engage with secondary market participants, usually climate NGOs like the World Wildlife Foundation (WWF), who acquire these loans at heavily discounted rates. These NGOs repurpose these debts with debtor countries, offering lower rates than their creditors but higher than what they paid in acquiring the loan. As a result, a high-risk loan becomes restructured at a lower interest rate under the condition that debtor nations would invest the debt-repayment savings in a climate fund.
Debtor countries remain in the precarious situation that they were in before because the debt is not written off, only repurposed and offered at a lower rate. If they continue making debt repayments, they would be obligated to continue on the trajectory of low economic. One can argue that NGOs are the only winners in this supposed ‘triple-win’ scenario as the debt is at a high risk of default and the creditors essentially cut their losses by selling it.
A 2022 Reuters article expands on the growing desire for debt-for-nature deals due to increased sovereign loans at a high risk of default. It offers a pathway for creditors to recover some of their investments but ignores the precarious economic conditions of the countries that are defaulting.
In January, Portugal restructured the debt of Cape Verde in the form of a debt-for-nature agreement, amounting to €140 million of adjusted payments. The deal involved repurposing Cape Verde’s debt defaulting into a fund that would be reinvested into the country’s climate adaptation and resilience infrastructure development program. While such a scheme is net positive for the country’s climate adaptation efforts, it remains that the debt itself was not forgiven, and as such, the criticisms raised earlier regarding debt-for-nature swaps remain.
Debt-for-nature swaps are, at best, a short-term fix to a larger problem. This essay proposes a non-market-oriented means, where climate debt relief is conceptualized as reparations for historic inequities regarding environmental pollution.
Those who oppose climate debt forgiveness contend that although the West bears the historical burden of climate pollution, the associated costs of polluting the Earth are not theirs. Proponents of this notion argue that even if developed countries have a moral obligation to the rest of the world, given their historical emitter status; this obligation falls short of climate debt relief citing a supposed responsibility and excusable ignorance. This would mean developed countries bear no culpability over the past two centuries for the side effects of industrialization, due to the lack of climate science.
Critiques of this argument have highlighted that ignorance does not absolve one of responsibility as the consequences of industrialisation remain unchanged as. If a person’s wealth is found to be unjustly derived, they would be required to provide reparations to those who suffered for it.
HOW WE CAN ACHIEVE CLIMATE JUSTICE
The intersectional relationship of poverty and inequality, engineered by low government spending on social amenities, intersect with other social issues, such as attaining climate justice and improving general social outcomes across our communities.
The unavailability of funds form contention around climate debt relief, but developed countries are more than capable of amassing swathes should the situation arise. A case in point is the West’s support of Ukraine in the ongoing conflict, where we’ve seen the West not only support with funds and resources but also attempt to wean off Russian oil by seeking additional sources of non-renewable energy, doubling down on fossil fuels instead of renewable energy. This highlights an absence of political will to advance climate debt relief efforts.
There must be a more aggressive push towards decarbonisation and attaining global climate justice in the developed world. We should consider whether facilitating a large-scale shift towards cleaner energy sources for the global South and providing the means for said countries to invest in climate adaptation and mitigation infrastructure will serve as a deterrent to Western leaders.
The governing architecture of global institutions such as the IMF should be considered as voting power is assigned on highest contributor basis. With the US leading the global body, it is logical that its policies would translate into the policies of the IMF; we must consider if we can entrust the status quo to deliver climate justice for sub-Saharan Africa and the developing world.⎈
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