Key points:
- 93% of the most Climate Vulnerable Countries (CVCs) face a debt crisis.
- Many spend up to 5x the amount of budget allocated to addressing climate change on serving debts.
One case study is Kenya, which after the pandemic in 2020 applied via the IMF for an austerity funding package, and was forced to cut public spending by 15%.
Nowadays, 35% of its debt is to private creditors such as Citigroup, Standard Bank and BlackRock. These lenders charge interest rates of up to 10.4%.
A recent Oxfam report found that for every $1 the IMF recommended low-income countries spend on public goals that promote development and wellbeing, they were instructed to cut four times more via austerity measures.
Another case study is Sierra Leone, where overseas capital after the civil war meant its public debt swelled from $1.2bn in 2002 to $1.9bn in 2022. Around 73% of the country’s foreign debt is owned by multilateral institutions such as the World Bank and the IMF, which refused to grant debt relief.
The value of its currency has depreciated 50% in 2023. Public spending was slashed in the aftermath. Almost 70% of children in Sierra Leone live in poverty, with parents unable to afford school fees.
In 2020 the UK passed the Debt Relief (Developing Countries) Act, which impelled private creditors to engage in debt relief under the 1996 heavily indebted Poor Countries (HIPC) initiative.
“A subsequent government review found the legislation to have been a success and to have had no adverse consequences for the UK economy. With the HIPC initiative now outdated, new legislation is urgently needed to apply to the current G20 Common Framework.”
p.12 ‘Jubilee 2025 – the New Global Debt Crisis’
The Jubilee 2025 global debt crisis report calls for Special Drawing Rights – a financial tool composed of a diversified basket of widely traded currencies – to be more widely available.
Finance by private lenders often comes with onerous interest rates due to the perceived risk of the investment, yet when the borrower defaults private venture capitalists refuse to engage in debt relief, leaving governments and multilateral lending facilities to finance the cost of bailout.
Climate change finance in 2020, according to OECD data, comprised just 26% in grants vs loans which have coupon payments priced in on the input capital in a forward-looking structure to make profit from the cost of capital.
OECD figures capture four distinct components of climate finance provided and mobilised by developed
countries: (i) Bilateral public climate finance provided by developed countries’ bilateral agencies and
development banks; (ii) Multilateral public climate finance provided by multilateral development banks and
multilateral climate funds, attributed to developed countries; (iii) Climate-related officially supported export
credits, provided by developed countries’ official export credit agencies, and (iv) Private finance mobilised
by bilateral and multilateral public climate finance, attributed to developed countries.
The report was jointly prepared by the OECD’s Environment and Development Co-operation Directorates.
It also benefited from dedicated 2020 data inputs by the OECD Trade and Agriculture Directorate (for the
majority of export credits) as well as donor countries (provision of 2019-2020 bilateral public climate finance
in advance of UNFCCC reporting, delayed to later in 2022).
Key findings:
Recap of 2020 figures and aggregate trends
USD 83.3 billion was provided and mobilised by developed countries for climate action in
developing countries in 2020. While increasing by 4% from 2019, this was USD 16.7 billion short
of the USD 100 billion per year by 2020 goal.
In 2020, public climate finance (both bilateral as well as multilateral attributable to developed
countries) grew and continued to account for the lion’s share of the total (USD 68.3 billion or 82%).
Private finance mobilised by public climate finance (USD 13.1 billion) decreased slightly compared
to earlier years, while climate-related export credits remained small (USD 1.9 billion).
Mitigation finance still represented the majority (58%) in 2020, despite a USD 2.8 billion drop
compared to 2019. Adaptation finance grew, in both absolute (USD 8.3 billion increase compared
to 2019) and relative terms (34% in 2020 compared to 25% in 2019). Such an increase is, to a
great extent, the result of a few large infrastructure projects. Cross-cutting activities remained a
minority category (7%) almost exclusively used by bilateral public providers.
Mitigation finance focused mainly (46%) on activities in the energy and transport sectors. In
contrast, adaptation finance was spread more evenly across a larger number of sectors and
focused on activities in the water supply and sanitation sector, and agriculture, forestry and fishing.
As in all previous years, loans accounted for over 70% of public climate finance provided (71% or
USD 48.6 billion in 2020, including both concessional and non-concessional loans). The share of
grants was stable compared to 2019 (26% or USD 17.9 billion). Public equity investments
continued to be very limited.
Over 2016-2020, climate finance provided and mobilised mainly targeted Asia (42%) and middleincome
countries (43% and 27% for lower- and upper-middle-income countries respectively).
Further, 50% of the total was concentrated in 20 countries in Asia, Africa and the Americas that
represented 74% of all developing countries’ population.
Mobilisation of bi-lateral finance initiatives depend on indigenous institutions’ ability to structure project finance deals with repayments assured, in meeting creditors’ requirements for return on principal by integrating multiple funding channels as each project enters its operational development phase. The loan may be collateralised with the cost of equipment subject to fixed or floating charges, and revenue streams must be channelled appropriately via so-called ‘waterfall’ or ‘mezzanine’ financing.
The report states that
Grants represented a much higher share of finance for adaptation and cross-cutting activities than for mitigation between 2016 and 2020. Grants typically support capacity building, feasibility studies, demonstration projects, technical assistance, and activities with low or no direct financial returns but high social returns. Public climate finance loans are often used to fund mature or close-to-mature technologies as well as large infrastructure projects with a future revenue stream, which are predominant for mitigation finance as well as in middle-income countries.
Grants represented a larger share of climate finance for SIDS, LDCs and fragile states, compared to developing countries overall. Countries within these three categories often present economic and socio-political conditions that do not favour loan-based finance due to limited absorptive and repayment capacity. Recipient institutions and projects in middle- and high-income countries tend to have a relatively higher capacity to seek, absorb, deploy and repay loans.
A common fallacy is that development finance is often mis-allocated or appropriated by illegitimate and/or corrupt regimes. In fact, after the Jubilee 2000 campaign for fair development finance, in nations where debts were cancelled the proportion of children finishing primary school went from 45% to 66%, the report claims.
The Jubilee 2025 report calls for the following actionables:
- Private creditors legislation to be updated.
- Systemic change of the IMF ensuring fairer (more proportional) allocation of voting rights.
- A public global debt registry, to hold all borrowers and lenders accountable.
“Legislators in key financial centres like the UK and New York could introduce requirements that make loan enforceability contingent about timely disclosure in the registry. It should be independent from lenders and borrowers and could sit within a UN framework.”
Cites EURODAD, Bogota Declaration, 2023 (see extracts below)
- Automatic debt cancellation following a natural disaster or economic crisis.
- Comparable treatment for all creditors. A system to be introduced whereby those setting lower interest rates on repayment not to be required to service debt relief in the same proportion as those setting higher repayment rates.
- A new global debt framework, as with the 2023 UN Tax Framework Convention, passed by the UN General Assembly, where the 4th International Financing for Development Conference timetabled for June 2025 could provide a springboard for further legislative change.
The poly-crisis facing Global South countries is reversing hard-won gains in poverty reduction as deep fiscal consolidation and austerity programmes dominate macroeconomic policy. Global debt policies launched by the IMF and the G20 failed, and many Global South countries are required to service multilateral, bilateral, and private sector debt crippling their ability to respond to domestic socio-economic pressures, and in effect de-invest in public services.
Global South’s constraints are both historical and contemporary. The colonial and neocolonial order continue through soft diplomacy and drip dependency in the form of official development assistance, foreign direct investment, and the promises of billions from the Global North private sector; coated with policy interventions that have seemingly targeted creating a hospitable environment for foreign capital to enter and exit Global South with minimal values being retained on Southern countries. This extractivism in policy advice has been long argued as contributing to the underdevelopment of the Global South.
We are alarmed that Southern countries remain locked in a vicious cycle of debt, climate, and extractivism, which deepens their dependence on commodities, increases environmental harm, and at the same time, sustains the uneven power structures between North and South, between lenders and borrowers….
The 70 delegates assigned to the Bogota declaration, which was hosted by Columbia on 20-21 September 2023, represented experts and activists from civil society organisations, social campaigners,
and pan-national networks .
We, as CSOs and networks that historically work on debt across the globe, demand to
decision makers at national, regional, and global levels:
• Reform of the global debt architecture that addresses unsustainable and illegitimate
debts, by bringing transformative change to the current unfair and persistently
unbalanced rules. Towards this end, we further demand:
OUTPUT DOCUMENT 3
o Automatic debt service cancellation mechanism that protects countries of
the Global South from extreme events related to political, climatic,
environmental, economic, and security shocks.
o Improved debt contracts aligned with responsible borrowing and lending
principles, including state contingent clauses, such as climate or pandemic
clauses.
o Binding responsible lending rules for all creditors, including private lenders of
sovereign debts.
o The elimination of austerity and fiscal consolidation measures and IFIs’
conditionalities.
o Advance towards the establishment of a fair, independent, transparent, timely
and binding multilateral framework for debt crisis resolution (under the
auspices of the UN and not in lender-dominated arenas).
Recent data publicly available on lending structures in Sierra Leone reported that the share of development cooperation that used budgeting execution procedures was 1 in a ratio of 1 to the use of auditing procedures. However, financial reporting procedures were used by 0 participants in PFM systems, and just 0.21 used procurement systems.
Forward spending plans were not dated more than 1 year in advance, with medium-term spending forecasts of two to three years virtually nonexistent, although the share of development cooperation on the national budget was at a ratio of 1:1:1 comprising reporting to the international management system, reporting at the expected frequency, and provision of the information requested.
The extent of parliamentary oversight on development cooperation stood at a ratio of 0.5:1 with respect to the regular provision of development information to parliament. The share of development cooperation reported on the international budget was 0, although the legal and regulatory environment for CSO was recorded at 0.75, resulting in CSO development effectiveness rated at 0.63.
The Sevilla Platform for Action on debt relief, resulting from the global consultation and consensus from the 13th June to the 3rd July, follows while the International Business Program alongside the development aid review assembled private sector stakeholders to ensure they are engaged with decision making related to debt structuring, project finance and initiatives to enhance global trading links.
The manifesto states its mandate (to):
- To catalyze investments at scale and close the SDG financing gap, initiatives will help countries mobilize tax revenue; scale up blended finance, including guarantees, and local currency lending by MDBs; and increase financing for crisis response.
- To address debt challenges, initiatives include a global hub for debt swaps for development; a ‘debt pause clause alliance’ to incorporate such clauses in lending; and a borrowers’ forum.
- To support architecture reform at national and global levels, initiatives include a coalition of countries and institutions for country led and owned platforms; a coalition of countries that will include measures of vulnerability beyond GDP in all financing operations; and efforts to update the role of development cooperation at the global level.
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