LONDON (Reuters) – Some of the countries most vulnerable to climate change face a sharp increase in debt service payments in the next two years, a research report finds, hampering their ability to invest in climate resilience and support their economies.
The Vulnerable Group of Twenty (V20) – a group of 55 economies vulnerable to the fallout from climate change – expects debt service payments to rise to $69 billion by 2024 – the highest level in the current decade, according to calculations from V20 and Boston University’s Center for Global Development Policy.
The authors said that debt service payments in 2022 are $61.5 billion and are set to be slightly higher than those they will receive in 2023.
Loma Ramos wrote in the report published Friday that emerging markets and developing countries are struggling with the COVID-19 pandemic, the Russian war in Ukraine, the climate crisis and interest rate hikes in advanced economies.
A number of debt relief schemes for the world’s poorest countries were launched after the pandemic ravaged global financial markets and hit economies around the world.
However, progress has been slow and some schemes – such as the Debt Service Suspension Initiative (DSSI) – have come to an end.
“Without debt relief and other complementary measures such as grants, G20 countries will delay their ability to reap the benefits of climate investments, such as improved resilience and enhanced energy generation through renewables,” the report added.
Adding to the complexity was the change in the structure of creditors across the $686.3 billion of external public debt owed by the G-20 countries. The report found that private creditors are now the largest group, holding more than a third of the debt while the World Bank and other multilateral institutions hold a fifth of each. The V20 owed 7% of the total to China, while 13% owed the wealthy Paris Club creditors.
The authors also urged the IMF to update its debt sustainability analysis to take into account the climate risks faced by vulnerable countries.
The report concluded that “given that climate impacts increase the cost of raising capital for countries at risk, the close link between climate change and debt sustainability needs to be identified and should inform the debate about countries in need of debt relief.”
The V20 economies include Barbados, Cambodia, Costa Rica, Ethiopia, Honduras, Lebanon, Morocco, Nepal, the Philippines, Rwanda, Senegal, Sudan, Tanzania, Tunisia, Tuvalu, and Vietnam.