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How Debt and Climate Change Pose a ‘Systemic Risk to the Global Economy’

How Debt and Climate Change Pose a ‘Systemic Risk to the Global Economy’

With dozens of countries struggling to manage both staggering debt and mounting climate disasters, some financial leaders are debating green debt relief.

How does a country deal with climate disasters when it’s drowning in debt? Not very well, it turns out. Especially not when a global pandemic clobbers its economy.

Take Belize, Fiji and Mozambique. Vastly different countries, they are among dozens of nations at the crossroads of two mounting global crises that are drawing the attention of international financial institutions: climate change and debt.

They owe staggering amounts of money to various foreign lenders. They face staggering climate risks, too. And now, with the coronavirus pandemic pummeling their economies, there is a growing recognition that their debt obligations stand in the way of meeting the immediate needs of their people — not to mention the investments required to protect them from climate disasters.

The combination of debt, climate change and environmental degradation “represents a systemic risk to the global economy that may trigger a cycle that depresses revenues, increases spending and exacerbates climate and nature vulnerabilities,” according to a new assessment by the World Bank, International Monetary Fund and others, which was seen by The Times. It comes after months of pressure from academics and advocates for lenders to address this problem.

The bank and the I.M.F., whose top officials are meeting this week, are planning talks in the next few months with debtor countries, creditors, advocates and ratings agencies to figure out how to make new money available for what they call a green economic recovery.

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