Climate-free borrowing risks a ‘credit crunch’ for future generations
BARCELONA (Thomson Reuters Foundation) – As countries borrow to finance COVID-19 stimulus spending, few governments are paying attention to how climate change could limit their ability to repay debt, researchers warned Wednesday.
Increasingly severe climate shocks, such as hurricanes, and chronic pressures such as water scarcity and drought are already hurting economies and could worsen in the future, scientists say.
But researchers at the University of Oxford, who estimated that national governments issued 193 long-term bonds worth $ 783 billion in 2020, looked at investor prospectuses for 50 and found that about three-quarters had disclosed no climate-related risk.
The results suggest that “governments do not understand the economic impacts of climate risks or are unwilling to report them,” they said in a commentary published in the journal Nature.
“Without rigorous climate disclosures, investors and governments are flying blind,” they added.
Of the 26 countries assessed, only three – Bermuda, the Dominican Republic and El Salvador – recognized that increasingly frequent weather disasters would create risks for their economies.
Only two – Bulgaria and the United Arab Emirates – identified the financial risks of transitioning their economies to reduce emissions, and only Ghana disclosed the impacts of both types of risks on its repayment capacity, the researchers said. .
They also warned that only 18% of the total recovery spending announced for COVID-19 had been spent on activities that would reduce global emissions, despite calls to “build back better.”
India had earmarked nearly $ 7 billion for new coal infrastructure in India, and Germany had provided an unconditional $ 10 billion bailout to its main airline, Lufthansa, they noted.
“Rather than creating prosperity and making it easier to pay down debt, investing in obsolete fossil fuel-based technologies leaves future generations with more debt, higher costs of capital, stranded assets and further warming. more importantly, ”the comment said.
Co-author Thom Wetzer, director of the Oxford Sustainable Law program, noted that countries – unlike businesses – cannot simply cease to exist in the event of bankruptcy, which means their citizens “will bear the cost of debt. for generations ”.
Last year has already seen a handful of casualties, with Zambia, Argentina, Belize, Ecuador, Lebanon and Suriname failing to repay their loans as the COVID-19 crisis has exacerbated economic hardship and rendered them unable to honor the scheduled payments.
They now have a difficult relationship with their creditors and may face austerity measures to manage repayments, the researchers said.
African leaders said in a dialogue on COVID-19 and climate change on Tuesday that the pandemic is preventing them from investing in climate action.
In turn, worsening global warming could inflict more damage on economies, limiting countries’ ability to finance health care, education or other key services.
When Saudi Arabia’s newly issued bonds mature in 2060, lower productivity due to higher temperatures and related impacts could reduce its GDP by 60% compared to scenarios without climate change, researchers said. ‘Oxford.
And when Hurricane Maria hit Dominica in 2017, it caused damage estimated at 220% of GDP, leaving the government little room for spending other than recovery.
On Wednesday, finance ministers and central bank governors of the world’s 20 largest economies agreed to increase the International Monetary Fund’s reserves by $ 650 billion and extend the debt service freeze to help developing countries. development to cope with the pandemic.
But Global Justice Now, a campaign group calling for debt cancellation, said that while G20 ministers had urged private banks to participate in debt relief, officials had failed to commit to adopt legislation obliging banks to join relief efforts.
This in effect left private banks “off the hook,” he said.
Separately, World Bank President David Malpass described the measures his institution was taking to ease the debt tightening of the poorest countries, noting that they only accounted for around 4% of global emissions but were “Significantly affected by climate change”.
To avoid bequeathing a ‘credit crunch’ to the next generation, countries should disclose their climate risks, use the COVID-19 recovery to build climate resilience and support the most vulnerable borrowing countries, Oxford researchers said. .
“As a government, you are doing your citizens a disservice – current and future – if you ignore it,” Wetzer told the Thomson Reuters Foundation.
Reporting by Megan Rowling @meganrowling; edited by Laurie Goering. Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, which covers the lives of people around the world who struggle to live freely or fairly. Visit news.trust.org/climate