Rich corporations like the major fossil fuel industry are largely responsible for climate change and It’s a developed fact that people living in the least developed countries are most vulnerable.
Climate justice demands to compensate for victims and ensures that people who are suffering get a fair distribution of funds and resources to build resilience to their livelihoods.
ActionAid is a global federation, focused on poverty and injustice, founded as a charity in 1972. This charitable federation published a report this month highlighting the need for debt cancellation. Research exposed a vicious cycle between debt and climate crises. Countries that are most vulnerable to climate emergencies are also facing a debt crisis, any kind of progressive developmental work a country makes during research and development just washes away in a natural disaster, making it a major accelerator to socioeconomic instability.
Since the Paris Agreement, the top 60 banks worldwide financed the fossil fuel industry by $5.5 trillion (WB invested $15 billion), only $673 billion in 2022 alone. The Intergovernmental Panel for Climate Change (IPCC) in AR6 Synthesis Report states “Projected CO2 emissions from existing fossil fuel infrastructure without additional abatement would exceed the remaining carbon budget by 1.5°C”.
Trillions of dollars are required to limit global warming to 1.5˚C, and currently, no country is mobilizing sufficient resources. At the COP15 in Copenhagen in 2009, the global north agrees to mobilize USD 100 bn for mitigation and adaptation to the global south. It’s a commitment for developed countries to pay for the pollution they generate but it is unfortunate to know that most of the climate finance arrives in the form of loans rather than grants.
The 2023 Spring meeting of the International Monetary Fund (IMF) and World Bank (WB) took place from April 10 to 16 in Washington, DC, to mobilize billions of dollars for climate mitigation and adaptation. Catalyzing their powers by “Special Drawing Right” from its “Resilience and Sustainability Trust”, transferring authority from Green Climate Fund and UNFCCC. To control who will get loans for climate finance and on what conditions. So, transferring financing facilities toward IMF and WB would be a regressive move. These banks are under the strong influence of G7 (Locking power with “OECD-Organization for Economic Cooperation and Development” a club of rich nations). Now we know that debt is a key instrument to a failing economy by itself and the process is directly accelerated by the climate crisis. As climate finance mostly comes in loans and interestingly the real value of these loans is suspicious.
“The debt crisis and climate crisis are inextricably linked, creating a vicious cycle that traps vulnerable countries in a downward spiral” quoted by David Archer, ActionAid.
The Intergovernmental Panel on climate change says protecting and restoring the world’s natural order is critical for limiting the global temperature rise to 1.5 degrees Celsius, but many argue that political and business leaders are focusing too much on ‘restoring’ rather than ‘protecting’. Due to extreme oscillation in weather conditions, the applied solutions are losing effectiveness. For example, there is mounting evidence that suggests that during the Billion Tree Tsunami plantation, many saplings were unable to survive due to prolonged heat conditions. If this trend continues, global warming is likely to hit 1.5 degrees Celsius in the next nine years.
Private climate intelligence firms are increasingly being tapped to supply the government with data and analysis. Seen in this way the climate emergency is just a bad fit for economics.
Perhaps the climate is just one complex process among many interactive and hazardous systems handed down by industrial modernity.
Mostly in the global south, countries in their economic capacities are not able to effectively respond to climate-related emergencies. According to “ActionAid”, 93 percent of countries in the Global South are under significant debt. It’s a competitive analysis of IMF’s 2022 assessment of countries that are in debt distress verse 63 most climate-vulnerable globally (Notre Dame, Climate vulnerability index). The report states nine countries that are most vulnerable to climate change are already in debt crisis. It is important to understand because countries are obliged to repay their debt before spending on anything else, report quotes “when government spends over 12 % of their revenue on servicing debt, they end up cutting public spending on crucial services like education, health and utilities”. These findings are alarming because accordingly, “38 out of 63 most climate vulnerable countries are already spending so much on debt servicing”.
“Our government is being forced to allocate limited resources to repay old loans, leaving us ill-equipped to rebuild and recover” Pamela Kuwali, country director at ActionAid Malawi.
“International Monetary Fund and World Bank” – both are lenders of last resort and enforcers of debt repayments; they can force countries to adjust their laws and economies for sustainable repayment of their debt before considering any other investments. These banks force countries to be dependent on policy advice, regardless of other priorities that the state might want like education and health. The IMF package normally forces a country to open their markets to international rules and regulations, and regularly recommends austerity while forcing states to cut public subsidies.
ActionAid results are critical with to observe because Pakistan is one of the topmost vulnerable countries to climate cataclysm. The state of Pakistan cannot adapt to the soft and hard impacts of climate change (Loss and Damage). The link between debt and climate crises is becoming evident. Pakistan’s current external debt stands at $ 126.3 billion, which must be paid in foreign currencies and to pay back, Pakistan first must earn foreign currencies. This can only be done by having an export-oriented economy. Preconditioned economic strategy jeopardizes the role of Pakistan in the present global economy, little has changed from the colonial era. As Pakistan exports raw materials for low prices while importing processed goods at high prices. So, to recover and sustain such pre-conditions, the state invests in extractive industries like exploiting fossils (Thar coal, Sui natural gas). It also accelerates investments in industrial agriculture that can produce commodities for exports like wheat, rice, maize, cotton, and sugarcane, initiating a destructive cycle. Sensible and rational decisions cannot be made when a country faces default conditions.
“These debts are entrapping countries in a detrimental cycle, forcing them to cut public spending and invest in activities that harm the climate just to repay their debts,” said Mr. Archer.
Pakistan hit hardest in 2022, 84 districts nationwide have been described as calamity hit by the Government of Pakistan, costing Loss and damage of around $ 15 billion, impacting thirty-three million people (Data source EMDAT report 2022). Economic activities declined sharply between July-December 2022. Major contributing factors in a localized manner were difficulties in securing fertilizer and animal feed, reduced agricultural output, and labor opportunities for low-income workers. Circularly, the loss and damage caused by the flood of 2022 forced the government of Pakistan to look for external debt from multilateral banks and friendly states, often on commercial loans, just to recover and rebuild.
Afterward, $ 10 billion was pledged at the “international conference on Climate Resilient Pakistan”, significant contributors were the Islamic Development Bank “$4.2 billion”, World Bank “$2 billion”, Asian Infrastructure Investment Bank “$1 billion” and Asian Development Bank “$1.5 billion”. As mentioned, all these pledges, which are climate finances from bilateral and multilateral partners, are contributing to the national debt – as these loans still must be paid back in dollars or other foreign currencies. Similarly, political instability in the country can send the price skyrocketing, which is evident in Pakistan’s currency shrinking, making a clear indication that climate finances in the form of loans can make the economic crisis even worse.
This is a complete shock that with such climate financing, the global south further indebts itself. Thus, debt cancellation is and should be the central demand of the Global South, only when countries like Pakistan are free from the excessive burden of external debt can take progressive rational decisions towards pursuing a more sustainable localized economic model.
To collect funds for climate finance, “Global Tax Justice” is an important consideration. According to Oxfam, “Wealth taxes” to just the top 5 percent of the world’s multi-billionaires could raise $1.7 trillion/year. Similarly, “windfall profits” of the world’s biggest fossil fuel companies which made $4 trillion in profits in 2022 can generate billions of dollars, while just taxing the “Trillion-dollar club” of five big techs (Google, Amazon, Apple, Meta, and Microsoft) could generate $ 32 billion/year.
Money that is supposed to help countries respond to the climate crisis should not make the climate crisis worse. When climate finance comes in the form of loans, debt locks underdeveloped countries into a negative spiral, making them even more vulnerable to climate change. There are clear alternatives that could be achieved through Tax alternations and enforcement in the light of ICJ advisory opinion.
It is time for debt cancellation to become a central demand of climate justice advocacy everywhere. Perhaps climate change is just the mother of all externalities, an anomaly, a perfect thunder for the world that works on neo-capitalism.
The author is working as an “Assistant Research Officer – Climate change” desk in the “Strengthening regional climate resilience” program at the Institute of Regional Studies. He is an expert in Climate change and Renewable energy. He can be reached at Environmentalist.email@example.com.