African states are hoping to turn debt into climate action as they seek innovative financing solutions that include a push to restructure their sovereign debts to support climate adaptation and conservation projects
Seth Onyango, bird story agency
Leaders of 58 countries vulnerable to climate change - including a group of the most vulnerable, known as the V20 - are pushing for the cancellation of debt owed by states in the global south to support mitigation efforts ahead of UN COP27 climate talks in Egypt.
In an apparent change of tack, finance leaders from the 58 countries are considering halting payments on a combined US$685 billion in debt until the International Monetary Fund (IMF) and the World Bank address climate change in ways the vulnerable nations see fit.
This comes after some of the world's most-polluting economies failed to fulfil a 2009 pledge in Paris to provide a minimum of US$100 billion annually to combat the effects of a changing climate.
At a V20 ministerial meeting in mid-October, states called for an immediate reform of the sovereign debt restructuring architecture.
"Debt sustainability analyses need to be tailored to V20 member circumstances. Then, through guarantee facilities and regulatory action, all creditor classes must be compelled to reduce the level of debt in V20 countries in order for them to mobilise financing for their climate and development goals,” reads its resolutions in part.
“We call for further allocations of Special Drawing Rights, some of which should be ‘rechanneled’ into the IMF’s newly created Resilience and Sustainability Trust that should be enshrined in country ownership whereby V20 Climate Prosperity’s Plans form the core of recovery efforts.”
Figures show that members of the group of 58 nations have at least US$435 billion US dollars of debt servicing payments due in 4 years.
But after losing more than half a trillion worth in GDP growth over the last two decades and now faced with the far-reaching impacts of climate change - including capital cost, inflation, debt ratings and other economic and financial terms - members are running out of options for financing the huge changes that will be required to ensure that climate targets are met.
As the pre-COP27 negotiations enter high gear, the V20 is hoping their unified push will yield results and more debts are restructured to support climate projects.
Signs of a deal are already on the horizon, with V20 and G7 having recently agreed to jointly launch the Global Shield against Climate Risks at COP27, in a wider effort to accelerate pre-arranged financing at speed and scale.
According to Energy Monitor, a comprehensive debt-for-climate swap programme will need to involve private and public creditors to ensure maximum fiscal space is created to drive green growth.
Debt-swap: African nations suggest a $685bn climate fix [Graphics: Hope Mukami] External debt owed by emerging markets and developing countries topped around US$11 trillion in 2020.
Servicing that debt has left many states in the global south without the funds to meet immediate social and economic needs, let alone invest in long-term climate goals.
The group will be looking to strengthen their sovereign balance sheets and create headroom for climate action.
While the rich nations have fallen short of their commitments, many bi- and multilateral donors report challenges in disbursing their funds due to a failure to identify fundable projects, especially related to adaptation. Developing countries also report difficulties in accessing available resources due to a lack of capacity and an inability to fulfil specific requirements established by donors or financing institutions.
But Africa now has outlined about 140 bankable projects including green infrastructure and transportation, hydroelectric power, solar, green hydrogen and wind.
At present, Africa accounts for a fraction of global emissions - at just under 4 per cent - in contrast to China (23 per cent), the US (19 per cent), and Europe (13 per cent).
Studies show Africa is most vulnerable to the effects of climate change with extreme weather like drought and flooding already becoming commonplace on the continent.
It is on that premise that African governments want wealthier nations to make big investments in clean technology and infrastructure to support developing countries.
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