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 US$36 billion has been pledged, less than US$20 billion has been deposited, and little more than US$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 it recognises that this alone is not enough. Its experts have been examining other innovations to address both climate change and crippling public debt faced by many Caribbean countries. The Commonwealth’s 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.
The Commonwealth’s 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. The Commonwealth estimates that cost to be minimal, if one compares 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 is convinced that innovative financing, with special attention given to highly indebted, vulnerable countries, is part of the solution.