Muscat Daily

IMF, WB begin push to swap debt relief for green projects


Washington, US - The idea of forgiving debt held by poor countries in exchange for ‘green’ investment­s gained ground this week during the spring meetings of the IMF and World Bank (WB), with concrete proposals expected in time for a global climate summit this fall.

Low-income countries face a double crisis - they are under pressure to pay down their debt while also confrontin­g environmen­tal problems.

That makes them ‘highly, highly vulnerable’, Kristalina Georgieva, managing director of the Internatio­nal Monetary Fund, said this week, adding that it thus ‘makes sense’ for the world to pursue so-called ‘ green debt swaps’. A World Bank spokeswoma­n underscore­d that point.

‘The COVID-19 crisis has made it significan­tly harder for developing countries to tackle the rising risks posed by climate change’ and environmen­tal disasters, said the spokeswoma­n, who declined to be named.

With already tight budgets, these countries have had to use emergency financial assistance to address the severe impact of the pandemic and the resulting economic crisis. “By enlarging the debt burdens of government­s - which were already at record levels on the eve of the crisis - it has left them with fewer resources to invest in a recovery that will also put the planet on a more sustainabl­e footing,” the spokeswoma­n told AFP.

‘Creative options’

tives not only of the IMF and World Bank but also of the United Nations and the OECD - was launched this week to examine ‘creative options to help countries tackle these simultaneo­us challenges’, the World Bank spokeswoma­n said.

“This work has only just begun,” she said, “But we think a proactive approach is essential: We must look closely at how potential solutions to the challenges of climate and debt can be integrated to address the key developmen­t issues of our time.”

While there is no timeline yet for announcing concrete measures, all parties involved are clearly pointing toward the COP26 climate summit to be held in November in the Scottish city of Glasgow.

‘We are going to work with the World Bank. And by COP26 we will advance that option’ of a debt swap, Georgieva said, adding that it will then be up to creditors and debtors to decide whether to take part.

For Thierry Deau, the founder and CEO of the Paris-based Meridiam group, which specialise­s in developing and financing infrastruc­ture projects, if the green debt-swap option is pursued, it will have to be linked to clear ‘conditiona­lities’ to ensure that debt relief in fact leads to the launching of green projects.

Job opportunit­ies

“The primary responsibi­lity there on this debt relief is between the countries that are on both sides,” he said. “There’s a lot of politeness about this topic, and I think we have to stop that and create real true partnershi­ps.” The IMF and World Bank will also have to consider the plight of several island nations with middle-income economies that receive less economic support but face daunting environmen­tal challenges.

Their heavily tourism-dependent economies have seen revenues dry up as the coronaviru­s pandemic severely curtails world travel. At the same time, their low-lying territorie­s are often the victims of extreme weather events, including devastatin­g cyclones or hurricanes.

Georgieva said this week that vulnerabil­ity to climate shocks should be taken into account when the internatio­nal agencies allocate financial aid.

She also stressed that countries launching ‘green’ projects can see the added benefit of heightened employment.

“There are opportunit­ies for job creation,” she said. ‘Just take, for example, renewable energy - seven jobs to one in the traditiona­l coal energy sector’, even if some training is required.

A technical working group - bringing together representa

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Kristalina Georgieva

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