Climate change, Debt and COVID-19


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The COVID-19 pandemic has come on top of the climate crisis, the existential threat of our time. Debt is pushed
to new heights at a moment when debt levels were al- ready historically high. This triple climate change, debt and COVID-19 crisis has catalysed a situation where
vulnerable nations are being squeezed between financial, economic, climate and health risks. Neither can they
afford huge investments in recovery programs, nor can they invest in resilience at the levels required to reduce their future risks. As a result, not only sovereign debt
but also climate-induced loss and damage will further rise, with vulnerable frontline communities paying the highest price. This study provides an analysis of the linkages between multi-hazard exposure, lack of resilience, resulting disaster risk with related loss and damage, sovereign debt risks, and the lack of investment into resilience building. It argues that a growing resilience gap results from the triple crisis, which is too big to be handled by the affected countries alone. It shows why the need for solidarity
action is so urgent, to get an inclusive and equitable
transition to a sustainable, climate resilient and carbon neutral future on its way. It argues that a swift and structured debt relief process as well as the reform of the international financial architecture are key priorities of a green recovery, as well as targeted investments in re- silience building and an accelerated economic transformation. While many stakeholders and decision-makers agree on these demands, the question to be answered is: How to walk the talk? Resilience is the key approach to managing risks and people’s rights should come first. Based on these principles, the study develops a set of proposals how to build
forward for a resilient recovery: • Supporting countries to assess their multiple risks as
a base for targeted action and support; • A Global Resilience Investment Facility additional to committed climate finance and ODA; • Development of a framework for debt conversion in the event of climate-induced disasters; • Dept conversion for climate resilience and conversation; • Debt moratorium and state insolvency proceedings, when debt has become unsustainable; • Equalisation Fund to cover vulnerable countries’ climate-induced extra credit risk; • Facilitate multi-stakeholder dialogues on a resilient and green recovery.

There is no one-fits-all approach, because the specific risks of countries vary. But how to assess countries’ risks? The Association of Small Island States (AOSIS) has proposed utilising a multi-dimensional vulnerability index, to drive a collective and sustainable response for addressing sovereign debt distress. Because such an index was not yet available, we have developed a multi-dimen- sional risk index, in response to the AOSIS call. We call it Climate Disaster and Debt Risk Index. It can measure a country’s multidimensional risk, considering 16 indi- cators. The formula and the open source databases used are disclosed. The Climate Disaster and Debt Risk Index is applied
to five low- and middle-income countries, each of them representing one of the five most-at-climate-risk regions of the world: El Salvador (Central America and the
Caribbean), Ethiopia (Sub-Saharan Africa), Sri Lanka (South Asia), Lao PDR (South East Asia) and Papua New Guinea (Oceania). Results reveal that each country’s risk profile is unique, due to very specific national circumstances, which is why their respective recovery strategies should be specific, too. Ethiopia is exposed to the highest climate, COVID-19 and other disaster risks. Nevertheless, the
relative loss and damage risk is highest in PNG, closely
followed by Lao PDR. The debt risk is highest in Sri
Lanka, followed by El Salvador; it is currently lowest in PNG. The multiple risk is highest in PNG and Lao PDR. These results indicate that links between the different
types of risk are complex and that it is worth taking a
nuanced approach in assessing a specific country’s risks. The information provided by our approach can be used as an early warning instrument. The approach allows for the identification of specific risk drivers, the measurement and comparison of the severity of risks and the identification and prioritisation of areas where risks should be reduced.

  • Publisher: Bread for the World
  • Author(s): Thomas Hirsch
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