Debt relief urgent for poor countries hit by climate shocks, says IMF chief

Poor countries hit by climate disaster should not be forced to struggle with crippling debt payments, the head of the International Monetary Fund has urged before a global summit on climate finance.

Kristalina Georgieva, managing director of the IMF, said providing debt relief to countries suffering from extreme weather was a matter of urgency. Extreme weather is hitting harder around the world, and countries already facing debt mountains cannot afford to service their debts, particularly at a time of high interest rates.

“Timely debt relief is essential,” she said. “Vulnerable countries hit by the impacts of climate change need urgent assistance to be able to address new pressing needs, while remaining able to to meet their obligations [on debt repayments]. This is a challenge we are rallying all key parties - including official and private sector creditors - to address as quickly as possible.”

She called for more action, including “debt for climate swaps”, by which donors forgo some of their interest or repayments and the money is diverted to actions that reduce greenhouse gas emissions or improve countries’ resilience to climate shocks.

She said that finance for poor countries to cope with the climate crisis was severely lacking. “We [as a world] are way behind in terms of reducing emissions, and way, way behind in mobilising finance for emerging markets and developing economies, where the growth in emissions is most significant,” she told the Guardian.

On Thursday and Friday this week, Emmanuel Macron of France will host a summit of more than 50 world leaders in Paris to discuss a new global financial pact, covering climate and development. Under discussion will be the potential for reform of the World Bank and its fellow institutions, including the IMF, and ways of expanding the amount of climate finance available for developing countries from billions to trillions of dollars a year.

Georgieva, who has held the top role at the IMF since 2019, after a spell as chief executive and acting president of the World Bank and as a European commissioner, will play a key role in the Paris conference. Under her leadership, the IMF hasincreased its involvement in climate finance.

“Developing countries are very aware of the climate crisis. I don’t think I have met a head of state or senior minister from Africa who did not want to talk about the climate crisis. It was very different even five years ago, when the climate was perceived to be very much a rich countries’ agenda,” she said. “Now it is very much a developing country priority.”

The IMF has also changed in response to these needs, she added, and was aiming for a 50% increase in its core climate finance next year. “The fund is in a very different place now.”

Suggestions likely to be brought up at the talks include tripling the finance that can be provided by the World Bank and putting a global tax on shipping to raise money to help countries worst hit by climate loss and damages. But Georgieva also favours quicker wins that are less complex and politically fraught.

For instance, providing more finance to poor countries in local currencies, rather than relying on dollars or other main world currencies, would substantially cut the cost of their borrowing, at a time of high interest rates. “Lots of finance is provided in foreign currency, but needs to be in local currency,” she said.

The IMF forecasts inflation will not come under control until 2024 or 2025, meaning problems with high interest rates are likely to persist for some time. “So debt will be even higher,” she said. “Debt resolution is a huge and pressing issue for the poorest.”

Bond contingent clauses are another area she hopes could bear fruit. “We have been working intensively to analyse such clauses that could be provided [in case of] high risk climate-related events,” she said.

Countries meeting in Paris will also discuss ways to make climate finance more accessible to developing countries, removing the barriers that inhibit lending, especially to poorer countries considered high risk by conventional investors. Many civil society groups have called for finance to be provided in grants rather than repayable loans.

However, Georgieva defended the use of loans: “As much as possible, climate finance in the form of grants of course helps. But long-term concessional finance also helps. Loans can create better prospects for sustainable growth, if the money is used to drive economic productivity.”

She added: “Debt per se is not bad, it can create opportunities for a more productive economy. Debt is bad when the money is wasted, or provided at a non-sustainable level [such as at too high an interest rate]. The more you provide grants to low income countries the better, but the more we can provide highly concessional long-term loans the better, too.”

She called on all development banks and other institutions, public and private, to step up their engagement on climate finance, which has become a big stumbling block to putting the world on track to meet the 2015 Paris climate agreement, and limit global temperature rises to 1.5C above pre-industrial levels. “Every one of us have to do as much as we can, as fast as we can,” she said.

cover photo:Kristalina Georgieva has held the top role at the IMF since 2019. Photograph: Jalal Morchidi/EPA