For
many Caribbean leaders, the long walk down a village road after a
violent storm to witness first-hand the devastation to infrastructure
and to people’s lives is a stark reality they
are forced to face almost every year. Equally challenging is finding
resources from tight budgets to keep rebuilding the same bridge, the
same road, the same school; or worrying about how to relocate entire
communities that may disappear under the steady rise
of the seas.
The
knock-on effect for governments is ballooning levels of unsustainable
debt, which make it difficult to deal with the impact of climate change
while continuing to meet the cost of healthcare,
education and the other basic needs of their populations. It means
small states, some of which have a public debt to GDP ratio of over 100
per cent, are simply unable to invest in long term solutions, because of
the constraints of debt servicing.
Interest
groups in the Caribbean have made it clear that the recent climate
change agreement in Paris needs to move swiftly beyond aspiration to
decisive and effective action. Despite
ambitious pledges, only limited funds are flowing to the countries that
need the greatest help. According to Climate Funds Update, just USD$36
billion has been pledged, less than USD$20 billion has been deposited;
and little more than USD$4 billion has actually
been disbursed to climate action implementers.
The
Commonwealth has already launched a Climate Finance Access Hub to help
countries secure climate financing, but we recognise that this alone is
not enough. Our experts have been examining
other innovations to address both climate change and crippling public
debt faced by many Caribbean countries.
Our
new idea is an initiative to swap national debt for climate change
action. This Multilateral Debt Swap for Climate Action proposal will
involve an agreement between participating climate
finance providers and debtor countries, to reduce their public debt in
exchange for a commitment to use debt repayments to finance local
climate change projects.
To
achieve this the Commonwealth suggests that providers gradually reduce
the value of small states’ debt by transferring some of their climate
finance pledges to the multilateral institutions
owed. This effectively writes off the borrowers’ multilateral debt
while redirecting the debt repayments to fund climate change projects.
Instead of repaying their creditors, governments of small states would
be required to pay into a local trust fund that
will manage, invest and disburse resources for project implementation.
This
approach will not only significantly ramp up the funds available to
small states to advance climate change projects, it will also generate
jobs and boost the economy. Governments
will make foreign exchange savings - given that their debt will be
effectively converted into domestic currency. So it’s a win-win for
small states and providers, who will benefit from an enhanced pace of
climate disbursements and a more effective delivery
of funds to tackle climate change.
Our
proposal is for climate finance providers to decide the frequency of
debt write-offs. The cost to providers will depend on the levels of
their pledges and the total outstanding debt
to be written off. But we estimate that cost to be minimal, if you
compare small states’ outstanding debt payments to the total size of the
current pledges by Commonwealth providers alone.
The
Commonwealth’s Multilateral Debt Swap for Climate Action proposal has
already been endorsed by the United Nations Secretary General. The idea
is expected to be at the centre of discussions
at the upcoming Caribbean Development Roundtable in St Kitts and Nevis
in March 2016.
The
Commonwealth is ready to respond urgently to the twin threats of
climate change and unsustainable debt, and we are convinced that
innovative financing, with special attention given
to highly indebted, vulnerable countries, is part of the solution.