The IMF is scaling back its efforts to focus climate debt swaps on countries without major debt problems and has abandoned plans to release a joint proposal with the World Bank ahead of the UN climate conference. next week, according to sources familiar with the matter.
In April, the director of the International Monetary Fund (IMF), Kristalina Georgieva, said green debt swaps could accelerate action on climate change in developing countries, and pledged to work with the World Bank to “move this option forward” in time for the United Nations Climate Change Conference. 26 in Glasgow.
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His comments garnered strong support from civil society groups advocating for solutions to tackle both climate change and the rising debt burden of many low-income countries, which have seen their level rise. debt to reach a record $ 860 billion in 2020.
But the company has run into concerns about the potential impact and usefulness of these exchanges given the small scale of previous exchanges, limited interest from creditors, and slow progress in the market. a broader and simpler debt restructuring program launched by the Group of Twenty last year. year.
Georgieva held a meeting on the issue of talks with officials from the United Nations, the World Bank and outside experts in July, but there was little progress on specific proposals, several sources familiar with the matter told Reuters. .
When asked if the IMF will unveil concrete plans next week, a spokesperson said the global lender continues to “explore ideas” and expects talks to go on for some time. .
“Debt-climate swaps could be a useful complement to existing climate finance instruments, especially in countries with sustainable debt but limited fiscal space,” the spokesperson said.
“We support the creation of an environment that allows these exchanges to flourish and reach a larger scale.”
World Bank officials have been skeptical, preferring to focus on changing climate-related policies rather than demanding additional spending from already heavily indebted countries, sources familiar with the talks said.
IMF officials have also raised questions internally about the impact of these targeted instruments, noting that some donor countries may prefer grants due to greater simplicity, sources said.
Kevin Gallagher, who heads the Global Development Policy Center at Boston University, said the lack of progress on Georgieva’s plans was disappointing.
Gallagher’s think tank and two others in June called on the G20 economies to launch a new global facility to secure new bonds that could be swapped by private creditors for old debts at a discount, a plan modeled after the so-called Brady bonds issued by Latin America. country in the late 1980s.
“The IMF must increase its sense of urgency,” Gallagher told Reuters, highlighting the confluence of problems facing countries in heavy debt and threatened by weather events linked to climate change.
John Morton, the US Treasury Department’s senior adviser on climate issues, said it was smart to maximize climate benefits in all debt cancellation programs, but that was largely a moot point for the United States, which does not hold much developing country sovereign debt.
“For these unnatural debt swaps to be meaningful, they have to be done on a meaningful scale, and it’s hard to see an easy path to that,” Morton told Reuters in an interview.
One of the sources close to the talks said debt-for-nature swaps totaled just $ 1 billion since the 1980s and the deals were complicated to execute.
“This sort of thing does not work on a systemic basis,” the source said, noting the slow progress made by Chad, Zambia and Ethiopia under the G20 common framework for dealing with debt.