How does a country deal with climate disasters when it is drowning in debt? Not well.
Take Belize, Fiji and Mozambique. Vastly different countries, they are among dozens of nations at the crossroads of two mounting global crises: climate change and debt. They owe staggering amounts of money to foreign lenders. They face staggering climate risks, too: more frequent droughts, stronger hurricanes and rising sea levels.
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," said an assessment by the World Bank, International Monetary Fund and others.
The bank and the IMF are planning talks 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. Kristalina Georgieva, managing director of the IMF, said green recovery programs had the potential to spur ambitious climate action in developing countries.
One of the countries at that crossroads is Belize. Its foreign debt had been rising and it feels some of the most acute effects of climate change: sea level rise, bleached corals, coastal erosion. The pandemic dried up tourism. Then, after two hurricanes hit Guatemala, floods swept away farms and roads downstream in Belize.
The debt that Belize owes its foreign creditors is equal to 85% of its economy. "How do we pursue climate action?" said Christopher Coye, the finance minister.
The United Nations said the global economic collapse endangered nearly $600 billion in debt service payments over the next five years. Both the World Bank and the IMF are important lenders, but so are rich countries, as well as private banks and bondholders. The financial system would face a huge problem if countries faced with shrinking economies defaulted on their debts.
Lately, there's been a flurry of proposals from economists, advocates and others to address the problem. They all call, in one way or another, for rich countries and private creditors to offer debt relief, so countries can use those funds to transition away from fossil fuels, adapt to climate change, or obtain financial reward for the natural assets they already protect, like forests and wetlands.