The Conference on Debt and Climate of the Group of Countries most affected by climate change (called V20 for short) introduced the studies of the Task Force on Climate, Development and the IMF. The workshop provided an overview of the debt situation of the V20 countries, upcoming payments and the structure of creditors.
The V20 is the group of countries hardest hit by the climate crises that have seen the effects of climate change on their economies, costing an estimated $525 billion in output losses over two decades. Workshop presentations also showed that the macroeconomic risks stemming from climate change impact on the debt sustainability trajectory of countries, the cost of accessing capital markets and fiscal space. In addition, changes in global financial conditions due to rising interest rates in advanced economies will further increase borrowing costs and threaten the debt sustainability of V20 member countries. In that context, the workshop recommended that V20 countries need to clarify the link between debt sustainability, available financial space and climate change.
The workshop discussed three main topics, including:
Climate risks and implications for debt sustainability
Mr. Regis Gourdel, professor at the Vienna University of Economics and Business, and Ms. Irene Monasterolo, Director of the Program of Impact of Finance on Climate Change Mitigation and Adaptation (ERCII) presented their findings on interaction between physical climate risk and spillover risk in the case of the Republic of Barbados.
The Republic of Barbados is vulnerable to both physical risks, as well as contagion risks arising from reliance on tourism and industry. In particular, the risk of contagion mainly affects the economic output of Barbados due to a decrease in tourism revenue. The Republic of Barbados needs to quickly implement climate change response policies, and plan to limit the impact of spillover risks on the tourism industry.
Debt-climate swaps: analysis, design and implementation
Presentation by Mr. Marcos Chamon, IMF Deputy Head of Debt Policy, Strategy and Evaluation introduced the newly released working paper which compares debt-climate swaps with alternative ways. Debt-climate swaps have been proposed as a tool that can help countries tackle both climate and debt problems at the same time.
A number of measures to support the implementation of debt-climate swaps were introduced such as: Expanding debt swaps by project, adopting programmatic approaches of use funding from debt swaps for budgetary expenditure, standardizing key performance indicators (KPIs) on Environmental, Social and Governance (ESG), developing KPI-linked bonds, using carbon credits to promote swaps debt and multilateral financing for a combination of debt and aid swaps.
Climate change and debt sustainability: a perspective from Barbados
The final part of the Workshop laid out the opportunities and challenges facing Barbados as Barbados seeks to become the world's first 100% green and fossil fuel-free island nation by 2030 and global efforts to facilitate development for countries such as the Republic of Barbados.