Debt in the Caribbean - Jubilee Caribbean's conference on debt and climate change
This week, Jubilee Caribbean hosted a conference on Debt and Climate change in Grenada. The conference brought together policy makers, civil society organisations, religious leaders and activists from the Caribbean to discuss the interlinkages between debt and climate in the region.
“We were the ones whose blood, sweat and tears financed the industrial revolution. Are we now to face double jeopardy by having to pay the cost as a result of those greenhouse gases from the industrial revolution? That is fundamentally unfair.” Mia Mottley, November 2022
On December 13 and 14, Jubilee Caribbean hosted a regional conference on debt and climate change. Small Island Developing Countries, and the Caribbean ones in particular, are deeply affected by climate-extreme events linked to climate change, which have been increasing both in terms of frequency and intensity. Between 1998 and 2017, the top-10 climate-extreme events in terms of losses as a percentage of GDP have all been recorded in Small Islands in the Caribbean; six only between 2015-2017. The deterioration of the physical and economic situation in an over-indebted country after a climate-related disaster makes it more difficult to face existing debt repayments in the immediate aftermath, but it also worsens the economic prospects for increasing revenues in the future, in order to be able to achieve debt sustainability. Furthermore, when the reconstruction and recovery is financed with more loans, it can be like throwing fuel into the fire.
This November world leaders, organisations and activists gathered in Egypt for the 27th United Nations Climate Change Conference of Parties (COP27). The lack of ambition and commitment from rich countries in this COP has once again condemned the world, and particularly communities in the global south, to an environmental, social and economic collapse. Although there were a few announcements made on climate finance, there has not been any substantial advance in agreeing on a new goal that provides sufficient, adequate, new and additional climate finance for global south countries. And without adequate finance for adaptation and, additionally, Loss and Damage, Sub-saharan countries will be forced to take on almost $1 trillion in debt in the next decade, according to Debt Justice UK. In fact, the linkages between the climate emergency and the debt crisis have made it to the public discussions around this COP. A vicious circle of debt and climate traps global south countries. Countries in the global south suffer from the worst impacts of climate change and have little choice but to borrow and pay for the costly recovery from climatic extreme events. Investment in energy transition to reduce carbon emissions, and in infrastructure to adapt to climate change is also financed through more debt. And climate vulnerable countries pay their debts more expensive, with higher interest rates.
The cost of servicing debts reduces their budgets for essential public services and infrastructure, harming their development and people’s lives. Yet the wealthiest countries, who have contributed the most to climate change, are deepening this injustice. They do not comply with the climate finance commitment and most of what they offer is in the form of loans that exacerbate unsustainable debt burdens on some of the poorest and most vulnerable countries in the world. A debt that started with slavery and colonialism, and that continued with neo-colonial resource pillage and unfair trade, financial and political relations that have lasted for centuries.
The situation is exacerbated in Small Island Developing States (SIDS), a group of 38 countries scattered through the global south oceans, whose sustainable development is constantly jeopardised by their structural weaknesses, including their small size, remoteness, reduced resource base, exposure to adverse climate events and limited diversification of the economy. Together with the Covid-19 shock, global inflation and spillovers of the war in Ukraine, these multiple crises and vulnerabilities are not only threatening the stability of the SIDS’ economies and harming the wellbeing of their people, but have also resulted in greater exposure to public debt problems.
The combination of both the debt and climate emergencies is appalling in SIDS.
Public debt rocketed in 2020, increasing more than 17 per cent in one year, against the 9 per cent average in low- and middle-income countries. The Covid-19 shock led to more lending to SIDS, for instance, the IMF went from having programs with 3 SIDS to lending to 20 of them in 2020 and 2021. As a result, 81% of SIDS are in critical debt situation. High debt levels are leading many governments to adopt austerity policies in order to pay for their debt commitments and, in many cases, following the IMF advice and conditions. In a time when countries still need to devote substantial resources to public services in order to face the impact of the pandemic and global economic crisis, it is scandalous that countries like Belize, Cabo Verde, Dominican Republic, Jamaica and Maldives are allocating between 20 per cent and up to 40 per cent of their government revenue to pay their external creditors.
While climate-related events are increasing both in terms of frequency and intensity, the most polluting countries are still not delivering sufficient and adequate climate finance to address mitigation and adaptation. Around half of climate finance provided to SIDS in 2017-2018 was estimated to be in the form of loans, mounting on more debt. Furthermore, while all SIDS together only received US$1.5 billion in climate finance between 2016 and 2020, in the same period 22 SIDS paid more than US$26.6 billion to their external creditors – almost 18 times as much. It remains to be seen whether a new global climate finance goal, set to be agreed by 2024, will actually live up to the needs of SIDS.
The international financial system does not offer sustainable options for resolving the risks of a debt fallout in SIDS. The proposed mechanisms are limited, temporary and not fit for purpose. Against the lack of mechanisms to address the multiple crises that impact global south countries the most, civil society are claiming a reform of the international financial architecture. Such reform should address the need for a fair, transparent and multilateral framework for debt crisis resolution, under the auspices of the UN and not in lender-dominated arenas, that addresses unsustainable and illegitimate debt. But also the delivering of unconditional debt cancellation for climate vulnerable countries and other countries in need, non-debt creating and sufficient, new and additional climate finance for mitigation, adaptation and finance to address loss and damage, and an automatic mechanism to halt debt payments in the wake of climate extreme events. Civil society is also demanding climate reparations. A fair response to the multiple crises in SIDS should start with a recognition of climate, ecological, social and historical debts that western countries owe to countries and communities in the Global South.