These countries will be hamstrung in their attempts to mobilise the resources necessary for a green and inclusive recovery that puts them back on a track to meet their climate and development goals.
The International Monetary Fund is concerned that the recovery in advanced economies could lead to some overheating and eventually interest rate hikes that might trigger capital outflows and exchange-rate depreciations.
The high cost of servicing debt is already impeding crisis responses and threatening the achievement of the Sustainable Development Goals, a global plan of action that aims to resolve the social, economic and environmental problems. In many developing and emerging countries, external public debt service is larger than healthcare and education expenditure combined.
The international community, and the G20 in particular, need to agree on an ambitious agenda for tackling the debt crisis and providing countries with the fiscal space for crisis responses that are also environmentally friendly and that reduce inequality.
IMF Managing Director Kristalina Georgieva and World Bank President David Malpass recognise this and have said their institutions will deliver a scheme for linking debt relief with green, resilient, and inclusive development at the climate change summit that is scheduled to be held in Scotland in November.
Our scheme emphasises the need to enhance the Debt Sustainability Analysis carried out by the IMF and the World Bank to account for climate risks and the spending needed to invest adequately in climate resilience and other sustainable development goals.
Governments receiving debt relief would develop their own strategies to promote a green and inclusive recovery and commit to reforms that align their policies and budgets with the Sustainable Development Agenda and the Paris climate agreement.
Implementing this sort of debt relief would not only address short-term needs but also lay the foundation for more sustainable growth and development.
They should also not be hamstrung in responding to the unfolding climate crisis during the most important decade for resource mobilisation of our times.
– The authors of the report are Ulrich Volz, director of the Centre for Sustainable Finance at SOAS, University of London and a senior research fellow at the German Development Institute; Shamshad Akhtar, chair of the Pakistan Stock Exchange and a former Pakistani central bank governor and finance minister; Kevin P.
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Developing and emerging economies, which suffered a large-scale withdrawal of international capital at the outbreak of the Covid-19 crisis, have seen investors return.
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