By Somini Sengupta
© The New York Times Co.
How does a country deal with climate disasters when it is drowning in debt? Not very well, it turns out. Especially not when a pandemic clobbers its economy.
Take Belize, Fiji and Mozambique. Vastly different countries, they are among dozens of nations at the crossroads of two mounting global crises that are drawing the attention of international financial institutions: climate change and debt.
They owe staggering amounts of money to various foreign lenders. They face staggering climate risks, too. And now, with the pandemic pummeling their economies, there is a growing recognition that their debt obligations stand in the way of meeting the immediate needs of their people — not to mention the investments required to protect them from climate disasters.
The combination of debt, climate change and environmental degradation “represents a systemic risk to the global economy that may trigger a cycle that depresses revenues, increases spending and exacerbates climate and nature vulnerabilities,” according to a new assessment by the World Bank, International Monetary Fund and others, which was seen by The New York Times. It comes after months of pressure from academics and advocates for lenders to address this problem.
The bank and the IMF, whose top officials are meeting this week, are planning talks in the next few months with debtor countries, creditors, advocates and ratings agencies to figure out how to make new money available for what they call a green economic recovery. The goal is to come up with concrete proposals before the international climate talks in November and ultimately to get buy-in from the world’s wealthiest countries, including China, which is the largest single creditor country in the world.
One of the countries at the crossroads of the climate and debt crises is Belize, a middle-income country on the Caribbean coast of Central America. Its foreign debt had been rising steadily for the past few years. It was also feeling some of the most acute effects of climate change: sea level rise, bleached corals, coastal erosion. The pandemic dried up tourism, a mainstay of its economy. Then, after two hurricanes, Eta and Iota, hit neighboring Guatemala, floods swept away farms and roads downstream in Belize.
Today, the debt that Belize owes its foreign creditors is equal to 85% of its entire national economy. The private credit ratings agency Standard & Poor’s has downgraded its creditworthiness, making it tougher to get loans on the private market.
Belize, said Christopher Coye, the country’s minister of state for finance, needs immediate debt relief to deal with the effects of global warming that it had little role in creating.
“We should be compensated for suffering the excesses of others and supported in mitigating and adapting to climate change effects — certainly in the form of debt relief and concessionary funding,” Coye said.