The Catalan version of this article was originally published in La Directa

“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

The Debt in the Caribbean Conference, hosted by Jubilee Caribbean with the support of Eurodad and Erlassjahr, follows shortly after world leaders met in Egypt for the 27th United Nations Climate Change Conference of Parties (COP27). In this year’s COP, the topic of debt made it into the room (and onto the streets), as the links between debt and climate change become more indisputable. 

The lack of ambition and commitment from rich countries in this COP has once again condemned the world, and particularly communities in vulnerable regions like the Caribbean, to an environmental, social and economic collapse. Although there were some relevant announcements, particularly a new loss and damage financing mechanism, there was no substantial commitment to reduce emissions in the global north, nor on advancing towards a new climate finance objective offering sufficient resources for  countries in the global south. And without adequate climate finance Sub-saharan countries, for instance, will be forced to take on almost US$1 trillion in debt in the next decade, according to Debt Justice UK.

As Eurodad and an increasing number of CSOs have already warned, 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 climate extreme events. Investment in energy transition to reduce carbon emissions, and in infrastructure to adapt to climate change, is also financed through more debt. At the same time countries that contributed the most to the climate emergency are not delivering on their climate finance commitments, and most of the climate finance they offer is in the form of loans. 

The situation is particularly acute in Small Island Developing States (SIDS), a group of 38 countries scattered through oceans in the global south. Behind the Paradise image, countries like Grenada, Barbados or Belize, face constant risks due to their structural weaknesses, including their small size, remoteness, reduced resource base, exposure to adverse climate events and limited diversification of the economy. These factors, together with the Covid-19 shock, the spillovers of the war in Ukraine and global inflation dynamics, are not only threatening the stability of SIDS’ economies and harming the wellbeing of their people, but have also resulted in greater exposure to public debt problems. 

As a recent Eurodad report exposed, public debt rocketed in SIDS in 2020, increasing by more than 17 per cent in one year, in comparison with a nine per cent average in low- and middle-income countries. The Covid-19 shock led to more lending to SIDS. The IMF, for example, went from having programs with three SIDS to lending to 20 of them in 2020 and 2021. As a result, more than three quarters of SIDS are in a critical situation. High debt levels are leading many governments to adopt austerity policies in order to pay for their debt commitments, in many cases following IMF advice and conditionalities. In a time when countries still need to devote substantial resources to public services in order to deal with the impact of the pandemic and global economic crisis, it is scandalous that countries like Belize, Cabo Verde, Dominican Republic, Jamaica and Maldives allocate up to 40 per cent of their government revenue to pay their external creditors. 

However, 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 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 this backdrop, civil society is calling for reform of the international financial architecture. Such reform should address the need for a fair, transparent and multilateral framework for debt crisis resolution that includes unsustainable and illegitimate debt, under the auspices of the UN and not in lender-dominated arenas. This should include the delivery of unconditional debt cancellation for climate vulnerable countries and other nations in need, with non-debt creating and sufficient, new and additional climate finance for mitigation, adaptation. Finance to address loss and damage, and an automatic mechanism to halt debt payments in the wake of climate extreme events must also be enacted. Civil society is also demanding climate reparations. First and foremost, 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.