Macron’s global financing pact for climate-vulnerable countries: just more blah, blah, blah?
- Amid climate change and growing debt, fairer global funding arrangements are needed for low-income economies
- But while the Paris summit shows the world’s rich recognise the need for a quantum change, it seems they still recoil at reforms
As Politico concluded in its summary of the much-hyped summit: “Developing nations called for a ‘transformation’ […] Western countries offered tweaks.”
There were indeed some scraps of progress worth celebrating. At the Paris summit, IMF managing director Kristalina Georgieva said the fund had reached its target of freeing up US$100 billion in special drawing rights (SDRs) for vulnerable developing countries. The World Bank announced that countries hit by climate disaster would be allowed to suspend debt repayments. Senegal sealed a €2.5 billion (US$2.7 billion) clean energy agreement backed by wealthier countries. Zambia finally reached a deal to restructure up to US$6.3 billion of its debt.
Proposals for a tax on shipping emissions reportedly gained support, and could be addressed at the International Maritime Organisation meeting next month. But more comprehensive tax proposals – ranging from taxes on polluters and fossil fuel companies to financial transactions were discretely parked.
Politico concluded that the meeting ended “barely having addressed the underlying problems” of developing countries, including their “crushing debt”. Brazil’s President Luiz Inacio Lula da Silva also hit out. “If we don’t change our institutions, the world will remain the same,” he said. “And the rich will go on being rich and the poor will go on being poor.”
Despite Macron’s efforts to moderate expectations, pressure for significant reform has been ratcheted up. Not only were the Global South powerfully represented at the Paris meeting but Macron’s agreement to co-host it with Barbados Prime Minister Mia Mottley boosted developing-world influence.
The Bridgetown Agenda also links climate adjustment costs with the disproportionately heavy debt burdens faced by the world’s poorest nations – larger than at any point in the past two decades.
The lobby group Debt Justice calculated that the group of 91 low-income countries today haemorrhage an average of at least 16.3 per cent of government revenue on servicing their debt – up from 6.6 per cent in 2011. Worst-suffering governments included Sri Lanka (81.4 per cent), Laos (52.9 per cent), Zambia (51 per cent), Pakistan (40 per cent) and Dominica (29 per cent).
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According to calculations by Avinash Persaud, economic adviser to Mottley, project financing for a similar solar energy farm would mean an average interest cost of 10.6 per cent for leading emerging countries against just 4 per cent for an EU borrower, which is regarded as more creditworthy.
He also showed that rich economies with deeper capital markets get 81 per cent of their green investment funding from private lenders, versus just 14 per cent in low-income economies – most of the cash for climate mitigation had to come from government coffers, returning the burden to taxpayers.
IMF and World Bank officials acknowledge that today’s borrowing environment is more complex. Back in the 1990s, the “Paris Club” of rich countries dominated debt renegotiations worldwide, accounting for roughly 39 per cent of poor-country debt deals. By 2021, the Paris Club accounted for just 11 per cent, with non-Paris-Club economies like China accounting for 20 per cent and private-sector lenders accounting for 19 per cent.
In short, a country facing debt repayment problems today needs to arm-wrestle agreements with many more creditors, each with different views and priorities.
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This is why Mottley and leaders of many other low-income economies are convinced that the Bretton Woods institutions (like the World Bank and IMF), tailored to post-WWII recovery over 70 years ago, are no longer fit for purpose.
The world faces gigantic funding needs to reach net-zero carbon emissions and mitigate the impact of climate change – an International Energy Agency report released last week says clean energy investments will need to rise to US$2.8 trillion a year by the early 2030s, from the US$770 billion spent last year.
While the Paris summit shows clearly that the world’s rich recognise the need for a quantum change, it seems they still recoil at any detailed proposals.
As Politico noted: “Rich countries were reluctant to engage with the Global South’s key demands on debt relief and new financing for climate action.” For example, Kenyan President William Ruto’s call for a global green bank, which he says has universal support among African nations, reportedly met a lukewarm, comme ci, comme ça response from Macron.
As long as leaders in the rich world remain “comme ci, comme ça” on comprehensive reform, summits like that in Paris last week will remain a celebration of blah, blah, blah.
David Dodwell is CEO of the trade policy and international relations consultancy Strategic Access, focused on developments and challenges facing the Asia-Pacific over the past four decades
