On Friday 2 February, Jayati Ghosh, Kevin Watkins and Ndongo Samba Sylla joined us for a discussion on ‘The debt and climate change precipice: How can the global majority cope?’ as part of the Cutting Edge Issues in Development Lecture Series for 2023/24. Chaired by Professor James Putzel. Read what MSc student Emma Lang took away from the lecture below.
You can watch the lecture back on YouTube or listen to the podcast.
“Defaulting is not always a bad thing.” – Kevin Watkins
“You need trust for any type of fund including the ‘Loss and Damage Fund’ to work. And the current geopolitical state is not susceptible to this.” – Jayati Ghogh
“Contributing to further global climate distress is the principal option the current global system offers debt-ridden and commodity-rich countries.” – Ndongo Samba Sylla
Jayati Ghogh, Kevin Watkins, and Ndongo Samba Sylla did not mince their words when discussing the link between debt and climate crises. Surprisingly, the gloom and doom left the audience feeling refreshed by the raw transparency. Kevin started the lecture by reminding us that today’s debt crisis isn’t a debut; history loves a rerun, and the global community has been slow on the uptake. He emphasized that not all debt is bad, instead, the real danger lies in passivity causing delayed action on debt relief. His conclusion was a call to arms, urging countries not to simply ‘cope’ but to face the challenge head-on through mobilisation. Movements like Make My Money Matter linking climate activism with financial choices, are an example of a way forward.
Ndongo followed by zooming into the debt situation in Africa. High growth in the 70s and 80s was achieved with African countries riding the wave of good terms of trade. However, a decline in those terms, combined with governments’ desperation to maintain economic growth by resorting to foreign borrowing, led to the African debt crisis. Fast forward to the “Africa Rising” period from 2000 to 2019, where debt was partially cancelled but remained a looming shadow, influenced by commodity prices and pesky high-interest rates.
Frequently overlooked is the role of foreign direct investment on debt distress in resource-rich countries. Ndongo used Zambia as a case study, since it was the first African country to default. This was due to the ‘African Premium’ effect, which was estimated to be up to 2.9% of extra unjustified costs (Olabisi & Stein 2015). Ndongo was clear in his sentiment that the current international financial system is not working for developing countries. Reform is vital for these countries to escape the foreign debt trap and gain fiscal control over their export sectors.
Now, let’s delve into the intersection of finance and climate, courtesy of Jayati’s presentation. The effects of climate change and the associated losses play favourites, as they are inversely related to countries’ level of carbon emissions and financial capacity. Jayati zeroed in on the elusive concept of climate finance, revealing the lack of a clear definition, despite numerous COPs where the term is thrown around by global leaders. Illustrating this irony, she brought attention to a Reuters report revealing how climate finance is used for entirely unrelated projects. Such examples include Belgium subsidising a film set in the Argentine rainforest or Japan funding a supposedly “greener” coal plant in Bangladesh.
The burden on low- and middle-income countries is growing, with rising spreads in sovereign debt despite lower debt-to-GDP ratios. Cue the new trends of debt-for-climate or debt-for-nature swaps, which, in Jayati’s words are “worse than useless.” Instead, she outlines three avenues for the global majority. Firstly, conditions for cooperation between low-income countries need to be created so that the creditor system responds. She stressed that unless you are systemically important, the creditor system will not bother. Mobilisation can then be used to enforce unitary taxation on Multinational Corporations. Lastly, Jayati advised learning the art of avoiding foreign debt pitfalls, unless necessary.
Faced with the enormity of the debt and climate crises, it can be daunting to grasp their weight and significance. However, Kevin, Jayati, and Ndongo’s insights transformed these abstract issues into tangible realities. Their message echoes the need for low-income and resource-rich countries to lead the charge in reforming the international finance system—a call to action that demands attention and commitment.
The views expressed in this post are those of the author and in no way reflect those of the International Development LSE blog or the London School of Economics and Political Science.
