A blog by Reginald Darius, head of economic policy in the Commonwealth Secretariat.
As I sat in a room with a group of creditors who engage with countries experiencing difficulties in meeting their debt obligations, I was once again reminded of the need for urgent action to address the negative financial effects of climate change. While the Paris Agreement, which was put into force at COP22, was a very promising milestone, it is important that it is complemented with measures that support countries’ management of the fiscal vulnerabilities associated with climate change.
This message was centre stage as I met with the informal group of creditors and debtor countries at the Paris Club Forum last week. Every year the Forum brings together a diverse group of sovereign creditors and debtors to discuss the most pertinent debt sustainability challenges of the day.
One priority for this year’s meeting was enhancing countries’ resilience to shocks. Regardless of their nature - economic, climatic, political, humanitarian - these unexpected events can have disastrous impacts on affected countries who have to face the immediate costs of rebuilding after a crisis, as well as accommodating and alleviating the long-term effects on growth and development.
Natural disasters are a type of shock Commonwealth developing member states are especially vulnerable to, with devastating socio-economic consequences. Whilst other countries are also vulnerable to the consequences of climate change, the structural characteristics of small states and their debt burden often means they are more severely and disproportionately impacted. They are also less able to take actions to mitigate the effects of these shocks.
The vulnerability of smaller countries to environmental and economic shocks is confirmed in the Commonwealth Vulnerability Index, which measures both environmental and economic vulnerabilities. The 22 Commonwealth members included in the index’s top 50 vulnerable countries in 2014 were mainly small states. Within this group, several states faced the dual burden of being highly vulnerable while also having high debt burdens, which limits their ability to adequately respond to shocks.
This year’s Paris Club Forum provided the opportunity to showcase the Commonwealth Secretariat’s work to help countries address this dual burden. Presenting alongside the Bank of England, Bank of France and the Government of Gabon, I emphasised the importance of developing new instruments to improve debt sustainability in the face of climate change.
I highlighted the benefits of
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Our Debt Swap initiative, which will channel pledged climate finance to pay down the liabilities of indebted small states in the Commonwealth is another solution. These Debt Swaps will not only increase the quantity of available climate finance for indebted nations, but can also be used to support debt reduction and management.
With some of the most vulnerable countries in the world facing the continued rising frequency and costs of natural disasters, it has never been more important for Commonwealth member states and international creditors to work together to advance innovative solutions to these challenges.
