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G20 – Debt cancellation to create fiscal space for addressing climate change

Home / G20 – Debt cancellation to create fiscal space for addressing climate change


Some of the most vulnerable countries to climate change are also experiencing some of the worst debt distress.  These countries often already are less resilient to climate change and are likely to face more frequent natural disasters, such as hurricanes, droughts or floods, in the future due to climate change. Faced with having to meet debt payment, LEDCs cannot afford to invest in adapting to climate change and extreme weather events. Debt cancellation can help these countries by creating fiscal space to address climate change. Many other LEDCs that are currently industrialising might want to invest in green and sustainable power generation and industry but are burdened by debt and therefore incentivised to choose for cheaper but more polluting investments contributing to climate change. Debt cancellations linked to greener investment can provide LEDCs with both fiscal relief and promote sustainable industrialisation. Thus growing the local economy without further contributing to climate change. 

LEDCs can loan money from countries, organisations such as the World Bank or the IMF, and private creditors. The loans of private lenders are often at higher interest rates and those private lenders have shown to be less willing to cancel or restructure debt. Countries could pass laws that protect borrowing countries from non-collaborative private creditors, but have been hesitant to do so, potentially out of fear of unrest on the financial markets.  

The committee should discuss whether they wish to cancel debt, and if so, under what conditions, if any. It should also pay attention to the role of private lenders and how to protect LEDCs, whilst keeping an eye on financial markets.

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