A recent assessment by the World Bank and International Monetary Fund finds that the combination of debt, exacerbated by the coronavirus pandemic, and climate change may push a growing number of countries to the brink -- and, with them, the global economy if action is not taken.
"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. ... One of the countries at the crossroads of the climate and debt crises is Belize, a middle-income country on the Caribbean coast of Central America. Its foreign debt had been steadily rising for the last few years. It was also feeling some of the most acute effects of climate change: sea level rise, bleached corals, coastal erosion. The pandemic dried up tourism, a mainstay of its economy. Then, after two hurricanes, Eta and Iota, hit neighboring Guatemala, floods swept away farms and roads downstream in Belize. Today, the debt that Belize owes its foreign creditors is equal to 85 percent of its entire national economy. The private credit ratings agency Standard & Poor’s has downgraded its creditworthiness, making it tougher to get loans on the private market. The International Monetary Fund calls its debt levels 'unsustainable.' ... Both the World Bank and the International Monetary Fund are important lenders, but so are rich countries, as well as private banks and bondholders. The global financial system would face a huge problem if countries faced with shrinking economies defaulted on their debts. ...
"And then there’s Mozambique. The sixth-poorest country in the world. It was already sinking under huge debts, including secret loans that the government had not disclosed, when, in 2019, came back-to-back cyclones. They killed 1,000 people and left physical damages costing more than $870 million. Mozambique took on more loans to cope. Then came the pandemic. The I.M.F. says the country is in debt distress. Six countries on the continent are in debt distress, and many more have seen their credit ratings downgraded by private ratings agencies. In March, finance ministers from across Africa said that many of their countries had spent a sizable chunk of their budgets already to deal with extreme weather events like droughts and floods, and some countries were spending a tenth of their budgets on climate adaptation efforts. 'Our fiscal buffers are now truly depleted,' they wrote. In developing countries, the share of government revenues that go into paying foreign debts nearly tripled to 17.4 percent between 2011 and 2020, an analysis by Eurodad, a debt relief advocacy group found."
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