The IMF’s Kristalina Georgieva announced the two institutions plan to introduce the initiative by November 2021.
Rabat – The IMF and World Bank will introduce a new initiative that provides debt relief for developing countries taking action against climate change. The IMF and World Bank aim to introduce so-called “green debt swaps” by November’s UN climate change conference.
IMF Managing Director Kristalina Georgieva on Thursday, April 8, confirmed that the two institutions aim to introduce the new initiative this year.
“When we are faced with this dual crisis – the debt pressures on countries and the climate crisis, to which many low-income countries are highly, highly vulnerable – it makes sense to seek this unity of purpose,” Georgieva told Reuters.
Rabat will likely receive the new initiative warmly, as Morocco is already a strong contributor to climate action. The new initiative aims to provide an incentive to developing nations to invest in combating climate change, with debt relief as the “reward.”
Morocco, which already plans to spend 15% of its budget on climate-change related adaptation programs, would likely stand to benefit from the IMF and World Bank initiative.
For countries particularly affected by climate change, such as Morocco, the additional debt relief the global institutions plan to offer could provide another motivating factor in addressing the growing global crisis.
Green debt swaps
The IMF and World bank introduced the new initiative on Thursday, April 8.
Described as a “platform,” the green debt swaps would reward climate change action in developing countries with debt relief from international debt holders.
The platform would “advise” developing countries on preferred action on “green, resilient and inclusive development,” and provide financing for such development projects.
“For countries that are close to their debt limits, financing GRID will require sufficient grants and concessional lending which could be augmented by conditional debt relief or reprofiling,” an IMF and World Bank paper on the idea stated.
The joint paper by the two global financial institutions closely linked debt and climate action, describing a possible vicious cycle if not addressed.
“If unaddressed, or approached in ways that do not take into account macroeconomic vulnerabilities and debt sustainability constraints, climate change and nature loss represent a systemic risk to the global economy,” the paper advises.