World Bank Spring Meetings to address sovereign debt and nature crises

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The fiscal impacts of the COVID-19 pandemic have strained governments’ abilities to service their mounting sovereign debts, pushing many countries towards the risk of default.

Recent debt restructurings in Angola, Argentina, Belize, Ecuador, Kenya, Lebanon, Suriname and Zambia demonstrate the harsh financial realities facing emerging economies. The G-20’s suspension of debt payments for 73 low- and lower-middle-income countries is providing short-term relief.

At the Spring Meetings, the World Bank and IMF will convene finance ministers to discuss a way out of the sovereign debt crisis that also brings about a strong, green and inclusive recovery.

Important new studies (WEF, Paulson, Dasgupta) point to the critical role natural capital, including rainforests, oceans and biodiversity, plays in driving economic productivity and growth – vital to an inclusive green recovery.

Across low-income countries, nature makes up 47% of total wealth. But these economic assets, some of which are irreplaceable, are being lost at an alarming rate. One million species are at risk of extinction globally. Forest loss is on the rise, due in part to the financial pressures of COVID-19. And the world is said to have less than 10 years left to act to limit global warming to 1.5 degrees Celsius.

The need to alleviate the fiscal pressures driving this degradation of nature is urgent. But countries lack the financial resources and incentives to address nature and climate challenges.

There is an opportunity now to deploy an instrument that links the cost of sovereign debt with success in protecting or enhancing a country’s valued, productive natural capital. Currently, sovereign debt markets do not realise that natural capital underpins the health of the economies they are betting on.

The Finance for Biodiversity Initiative (F4B) has designed a Nature and Climate Bond Facility (with multilateral development finance institutions and nature experts), which would work as a bridge between sovereign debt markets and the need to recognise natural capital as vital to long-term sustainability and economic performance.

The Facility will bring together debtor and lender countries to establish agreements that tie sovereign debt relief to green and inclusive growth. It would make this possible across diverse policy environments, contexts, actors and needs.

The proposed Facility will be discussed at the Spring Meetings with a view to deploying a new generation of sovereign debt instruments that align with nature and climate goals.

The Spring Meetings are a key moment on the road to COP26 andCOP15, where countries will face additional pressure to commit to stemming nature loss and addressing the urgency of climate change as part of an inclusive green recovery.

Without action on sovereign debt, nature and climate, our planet, productivity and prosperity are under threat. The Spring Meetings, as well as the biodiversity and climate summits, offer a moment for the international community to build the architecture they need to successfully emerge from the dual debt and natural capital crises.

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