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Editorial
November 2, 2013

Debt for climate adaptation exchanges can work for us

Small island developing states (SIDS), among which Jamaica is classified, are suffering from two major problems, one, which in the short term will sink them economically, and the other, which will eventually sink them, or at least large parts of them, physically.

The first is debt and the second is climate change. The SIDS are heavily indebted, with most of them having debt/GDP ratios of over 60 per cent and many with over 100 per cent.

The accepted wisdom, based on empirical studies, is that a country with a debt/GDP ratio of over 90 per cent cannot grow out of debt. It has to reduce its debt burden and only then can there be economic growth.

Second, the rise of the sea level, driven by global warming, is taking place at a much faster rate than scientists have been predicting and hence what looked like being decades away is actually affecting SIDS.

This is particularly worrying because SIDS are mostly low-lying coastal societies, characterised by having most of their population, economic activity and infrastructure on the coast.

If the SIDS are to survive, they must spend substantial sums of money quickly to take action to protect themselves and delay the impact of the inexorable rise of the sea level.

The problem is that debt repayment demands such a large share of the government’s budget and a significant share of foreign exchange that there is hardly any prospect of economic growth. A vicious cycle of impoverishment is entrenched in which debt prevents growth, and the lack of it, in turn, prevents debt repayment. Meanwhile, climate change is having an adverse impact on resources, eg beaches, and economic activity such as tourism.

The obvious solution is foreign assistance from the international development institutions and the developed countries to bail out the SIDS. In these days of a prolonged global economic crisis nobody is giving away aid or granting debt cancellation.

The solution to the problem of the debt-strapped, climate-affected SIDS is debt for adaptation exchanges. There are two types, the first involving commercial or private debt owed to banks and bondholders and the second, bilateral debt owed to governments.

In the first case, an NGO pays the bank and the Government commits to investing the equivocal sum in climate adaptation expenditure and, in the second, a creditor government cancels debt and the beneficiary government spends the same amount on climate adaptation. This would reduce the debt and provide resources dedicated to climate change adaptation. This is killing two birds with one stone.

Debt swaps/debt conversion mechanisms, by which debt can be renegotiated with the creditor to fund activities agreed by all stakeholders involved could include the development and/or climate adaptation institutional capacity. They could also fund actual programmes such as coastal/marine management, slow deforestation and the raising of public awareness about climate change through the dissemination of information.

Food for thought.

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