Countries in debt distress thrown financial lifeline at climate summit

Poorer countries struggling with a growing debt crisis were thrown a lifeline at a global finance summit in Paris, but the plans still fell short of the debt forgiveness programme that some had hoped for.

Progress was made on reforms that would help address the climate emergency as nearly 40 world leaders – including Minister for Environment and Climate Eamon Ryan – and the heads of global institutions met in Paris for the two-day summit, which ended on Friday.

French president Emmanuel Macron called for global taxes on shipping, aviation and potentially on wealth in order to fund climate action. “Help us find all the countries which today have no tax on financial transactions and which today have no tax on plane tickets. Help us to mobilise at the International Maritime Organisation [meeting to discuss a shipping tax] in July so that there is international taxation,” he told French broadcast journalists.

US treasury secretary Janet Yellen signalled the Biden administration would consider the shipping tax, though she stopped short of endorsing it.

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Incoming president of the World Bank, Ajay Banga, set out a new vision for the body which would combine its traditional focus on lifting people out of poverty with an emphasis on the climate crisis, which threatens to destroy progress on development.

“My view is the World Bank’s vision has to evolve to say, yes, we will create a world free of poverty, but on a liveable planet, meaning we tackle climate, pandemics, fragility, food insecurity, things that reduce our ability to have quality of life, and to have hope and optimism,” he said.

But poverty and climate campaigners said few concrete measures had been agreed at the summit that would make a difference now. At least 52 countries are currently in debt distress, unable or close to unable to service their debts, driven higher by rising interest rates and a strong dollar.

Christian Aid’s director of policy, public affairs and campaigns Osai Ojigho said: “An outcome that debt repayments [will be] paused for poorer countries hit by climate disaster is woefully inadequate and falls short of the transformative change low-income countries call for. Alongside the scale of climate finance agreed these efforts won’t break the cycle of crisis.

“With poorer countries facing crisis locked out of the planning for this summit it is no wonder Macron’s piece of paper lacks a radical edge. It is critical that those most responsible for creating the challenges we face today step aside and follow the leadership of the Global South,” he added.

“We need a complete overhaul from debt cancellations and structural solutions that prevent the build-up of unsustainable debt to enforcement of fair global tax rules. With Cop28 around the corner now is also the time to see concrete proposals to finance a loss and damage fund,” Mr Ojigho said.

Walter Mawere, an advocacy co-ordinator for Care International in Somalia, said: “It’s a disappointment. The summit did not go far enough to deliver for the people who bear the brunt of climate impacts.”

He pointed to the worst drought in 40 years in Somalia. “[We see] the harshest impacts of climate change every day. What can I tell them when I get home tomorrow? These international technical conferences must respond to this reality and hear our messages.”

The World Bank will pause debt repayments for countries struggling with climate disaster, but only on new loans. The UK will do the same for its existing loans, but only for 12 countries in Africa and the Caribbean.

About $100 billion is to be provided to poorer countries through an instrument known as special drawing rights (SDRs), a form of currency provided by the International Monetary Fund. France, Japan and the UK were among the countries pledging varying proportions of their SDRs to poorer countries, amounting to about $80 billion. A further $21 billion could come from the US if the White House can get agreement from Congress.

IMF managing director Kristalina Georgieva said: “We have a success story. Something we promised and it was delivered.”

The SDR cash is separate from the $100 billion a year in dedicated climate finance that poorer countries have been promised to help them cut greenhouse gas emissions and adapt to the impacts of the climate crisis. And both are separate from a planned new fund known as the loss and damage fund, to help rescue countries that are stricken by climate disaster. If a global shipping tax can be instituted, which by some estimates could raise $5 billion a year, at least some of the revenues would accrue to loss and damage.

In an address to an International Energy Agency event on scaling up private finance for clean energy in emerging developing countries, Mr Ryan underlined the potential of solar power in the first instance. “It’s cost effective, can support climate and energy justice, and Africa in particular is a potential solar power,” he added, though he acknowledged current levels were low with the Netherlands currently having more solar than all of Africa.

The technology was also flexible and could be developed to suit different populations, he said.

On next week’s IMO meeting to discuss the potential for a new tax on shipping, Mr Ryan said the decision was likely to be finely balanced. “It’s 50/50,” he added.

The summit ended with world leaders agreeing they wanted a transformation of the world’s approach to the investment needed to lift countries out of poverty, overseas aid, and the climate crisis, and a roadmap to be set for fresh discussions on how to achieve these aims. Countries agreed on a central principle that the finance needed would run “to trillions, not billions”, and that most of it would have to come from the private sector, kick-started by public money.

They agreed institutions such as the World Bank and other development banks should work to “de-risk” investment in developing countries, to bring far higher flows of finance to poor countries that need it.

But divisions between rich and poor were deep, and major question marks over future policies – including potential new global taxes on shipping, aviation, fossil fuels and wealth – remain.

Youth campaigners in Paris, including Greta Thunberg and Vanessa Nakate, said the summit had missed the point by failing to focus on the greatest source of the problem: fossil fuels. They said rich countries must abandon fossil fuels, and must help pay for the rest of the world’s transition, but the summit barely addressed the issue.

Ms Thunberg said: “If your house is on fire the first thing you do is to stop pouring oil and gas on to the fire. If you keep adding fossil fuels and fund more oil and gas, you are only fuelling the flames.” – Additional reporting Guardian