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LONDON, Sept 23 (Reuters) – Some of the countries most vulnerable to climate change will face a sharp rise in debt service payments over the next two years, hampering their ability to invest in climate protection and strengthen their economy, according to a research report.
The Vulnerable Group of Twenty (V20) – a group of 55 economies exposed to the fallout from climate change – expects debt service payments to reach $69 billion by 2024 – the highest level ever. the current decade, according to calculations by the V20 and Boston University’s Center for Global Development Policy.
Debt service payments in 2022 amount to $61.5 billion and are expected to be slightly higher than in 2023, the authors said.
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Emerging Markets and Developing Countries (EMDs) are grappling with the COVID-19 pandemic, Russia’s war in Ukraine, the climate crisis and interest rate hikes in advanced economies, writes Luma Ramos in the report released on Friday.
A number of debt relief programs for the world’s poorest countries have been launched after the pandemic rocked global financial markets and hammered economies around the world.
However, progress has been slow and some of the programs – such as the Debt Service Suspension Initiative (DSSI) – have expired.
“Without debt relief and other complementary measures such as subsidies, V20 countries will postpone their ability to reap the benefits of climate investments, such as improving resilience and improving electricity generation through climate change. renewable energy,” the report adds.
A change in the creditor structure for the $686.3 billion in external public debt owed by V20 countries added to the complexity. Private creditors were now the largest group, holding more than a third of the debt, while the World Bank and other multilateral institutions held a fifth each, according to the report. The V20 countries owed 7% of the total to China, while 13% was owed to wealthy Paris Club creditor countries.
The authors also urged the International Monetary Fund to update its debt sustainability analysis to take into account the climate risks facing vulnerable countries.
“Given that climate impacts increase the cost of raising capital for vulnerable countries, the close association between climate change and debt sustainability needs to be considered and should inform the discussion on which countries need debt relief,” according to the report.
V20 economies include Barbados, Cambodia, Costa Rica, Ethiopia, Honduras, Lebanon, Morocco, Nepal, Philippines, Rwanda, Senegal, Sudan, Tanzania, Tunisia, Tuvalu and Vietnam.
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Reporting by Karin Strohecker; Editing by Josie Kao
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