October 26, 2023
Despite already struggling to repay their existing debts, climate-vulnerable countries will need to spend more than 2.4 trillion USD every year starting in 2030 to address climate change and transform their energy systems. In developing countries like the Philippines, the climate crisis is a debt crisis. Without urgent climate action and debt reform, the cost of capital and debt will continue to rise to unsustainable levels.
In this context, climate advocates participated in the 2023 Annual Meeting of the World Bank and the International Monetary Fund in the hopes of finding a path forward to address the intertwined climate and debt crises.
On October 12, the World Bank’s Board of Governors endorsed the new vision of the World Bank: To create a world free of poverty on a livable planet. The bank also adopted a new mission to end extreme poverty and boost shared prosperity.
This is an excellent starting point but these moves should be underpinned by policies aligned with the 1.5 degrees Celsius goal of the Paris Agreement.
In several dialogues during the conference, civil society actors reiterated the need to implement a comprehensive and robust policy that bans all direct and indirect financing of fossil fuel development, infrastructure, and promotion.
Building new fossil fuel infrastructure is not only a waste of resources. It may also leave Global South nations with expensive assets stranded by the net-zero transition. We emphasized that the World Bank must further acknowledge the impacts of its energy investments, especially in reducing electricity costs as a means to vitalize economies.
However, in a town hall discussion with civil society organizations, the World Bank President, defended the institution’s continuous funding of fossil gas projects, citing its supposed role as a transition fuel to replace coal in baseload generation for underserved communities.
What he failed to recognize is that the rapidly changing energy landscape is demanding a move away from the outdated baseload model towards a more agile and responsive approach, powered by clean energy and energy storage technologies. A more flexible electricity grid, combined with demand response efforts, clean energy, and energy storage, is more resilient and affordable than a grid that heavily relies on baseload power.
The World Bank simply cannot illustrate climate change as a mere “trade-off” because climate-resilient and the low carbon transition safeguards economic and social development.
The V20 Finance Ministers, a dedicated, action-oriented, solutions-driven platform of finance ministers of 68 climate-vulnerable countries, emphasized that “aligning the financial system to serve the most vulnerable is not only pivotal for those least responsible and most exposed to the climate crisis but also imperative for global shared prosperity and stability.”
In its 11th Ministerial Dialogue last October 15, attended by IMF Managing Director Dr. Kristalina Georgieva, officials of the World Bank and other multilateral development institutions, and the finance ministers and high-level representatives of the V20, G7, and G20 countries, the group urged the immediate alignment of the global financial system with climate science and climate policy through the Accra-Marrakech Agenda while advancing other critical reform solutions in the Bridgetown Initiative 2.0.
Climate-vulnerable economies need to find ways to pay for the changes that need to be made to deal with climate change. We can’t just cut spending, because that would hurt people and economies. Instead, we need to find new ways to raise money to make the changes they need to make without having to go into too much debt.
The V20 Finance Ministers called for the global financial system to move from conventional austerity-based approaches to resource mobilization-driven approaches that prioritize climate action, help countries overcome costly capital hurdles to low-carbon and climate-resilient investments, provide pre-arranged and trigger-based funds, and enable debt sustainability.
Financing future loss and damage caused by climate change could amount to 150 billion and 300 billion USD per year by 2030. It is critical to create a loss and damage fund that is fair, inclusive, fast, and responsive to the needs of communities that need it most.
As the United Nations Framework Convention on Climate Change (UNFCCC) Loss and Damage Fund take shape in the lead-up to the 2023 United Nations Conference of the Parties (COP 28), governments and climate advocates from vulnerable nations emphasized in Marrakech the role of the IMF in addressing loss and damage.
Given the IMF’s mandate to maintain global financial stability and its macroeconomic expertise, the V20 Finance Ministers stressed the need for the IMF to integrate loss and damage into its surveillance functions, lending toolkit, and capacity development activities.
The Climate Reality Project Philippines, in particular, underscored that one good option to ensure the scale and access for the loss and damage fund is through an IDA-like window for Loss and Damage that can support delivery into social and financial protection systems.
Another critical point of discussion in the conference in Marrakech was the need to transform the IMF’s governance structure to better represent its membership.
Dr. Georgieva, herself, acknowledged this and talked about adding a third Chair for Africa to the IMF Executive Board and the possibility of making the V20 an official IMF group, alongside G7, G20, and G24.
While the official recognition of V20 in the IMF is still up in the air, Ivan Machado Oliveira, Deputy Secretary of the Finance Ministry of Brazil, the chairperson of the G20, invited the V20 to have a seat as a guest to the G20 Sustainable Finance Working Group.
The World Bank and IMF meetings in Marrakech offered a glimpse of hope, but more needs to be done to address the intertwined climate and debt crises.
For climate vulnerable countries like ours, merely surviving the climate crisis is not enough; the aim is to thrive in a rapidly warming climate.
We look forward to COP28, where more discussions about the future of climate action will take place.