PremiumSome of the nations most vulnerable to climate change face a sharp rise in debt service payments in the coming two years, hampering their ability to invest in climate proofing and shoring up their economies, a research report found
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Countries that are most vulnerable to climate change face a sharp rise in debt service payments in the coming two years, ceasing them to invest in climate proofing and economic developments, reported Reuters citing a report.
The Vulnerable Group of Twenty (V20)comprises 55 economies exposed to climate change. Member nations of this group expect debt service payments to rise to $69 billion by 2024. If the prediction turns into reality, the hike will become the highest in the current decade, according to calculations from the V20 and the Boston University Global Development Policy Centre.
Currently, the debt service payments stand at $61.5 billion, which may increase above that in 2023, the report added.
The ongoing global issues like inflation, the COVID pandemic, and Russia Ukraine war may force these nations to cut down their expenses on economic development and on policies to save themselves from the impact of climate change.
As the world continues to suffer from the after-effects of the Covid pandemic, several debt relief schemes were launched for the world's poorest nations. These schemes were made to assist these economies after the pandemic roiled global financial markets.
However, such schemes fail to provide these countries relief from major issues like global inflation and Russia Ukraine crisis. Moreover, many of the schemes like the Debt Service Suspension Initiative (DSSI) - have expired.
"Without debt relief and other complementary measures such as grants, V20 countries will postpone their ability to reap the benefits of climate investments, such as improved resilience and enhanced power generation through renewables," the report added.
The report observed that there has been a change in the creditor structure of many of the nations vulnerable to climate change. The $686.3 billion of external public debt owed by the V20 nation, saw the entry of more private creditors. Now, they hold over a third of the debt while the World Bank and other multilateral institutions held a fifth each, reporter Reuters.
China also holds a significant share in the debt amount. V20 nations owe around 7% of the total to the dragon. Moreover, 13% of the debt share is left for payment to Paris Club's wealthy creditor nations by the V20 nations.
As the rising temperature, melting glaciers, and shifting season patterns continue to remind the world about climate change, these nations vulnerable to climate change don't even need such reminders. The land area of one of the members of V20, Tuvalu(an island nation) is constantly reducing due to the rising sea level. With the current global issues impacting its economy, it won't be able to invest more in saving itself from sinking.
To deal with the situation, the authors urged the International Monetary Fund to step in and upgrade its Debt Sustainability Analysis. They have asked the IMF to account for climate risks faced by vulnerable nations.
"Given that climate impacts are increasing the cost of capital increase for vulnerable countries, the close association between climate change and debt sustainability needs to be captured and should inform the discussion on the countries needing debt relief," the report found.
The V20 economies consist of Barbados, Cambodia, Costa Rica, Ethiopia, Honduras, Lebanon, Morocco, Nepal, the Philippines, Rwanda, Senegal, Sudan, Tanzania, Tunisia, Tuvalu, and Vietnam.