A world in crisis: who foots the bill?
Guest author: Jess Winch, News Editor at Tortoise
Photo: Shutterstock
Countries that ought to be the future of the world are often unable to pay their debts. If they can’t pay their debts, it means they also can’t pay teachers and nurses – let alone invest in the transition to clean energy.
On May 16th, the Centre for Disaster Protection partnered with Tortoise Media to host a thought-provoking digital ThinkIn. This engaging online conversation delved into the pressing issues of accelerating debt, climate change, and disaster risk, while questioning the suitability of 20th Century institutions in addressing the challenges of the 21st Century. We were privileged to have esteemed speakers Gayle Smith, Chief Executive of the ONE Campaign, and Ekhosuehi Iyahen, Secretary General at the Insurance Development Forum, sharing their insights. The insightful ThinkIn was moderated by Jeevan Vasagar, Climate Editor at Tortoise. Here are the highlights of the conversation:
A tipping point
Gayle Smith, the CEO of the One Campaign, said close to half of the world’s poorest countries are at risk of debt distress. The debt service that will be due this year for Africa is $69 billion; that’s the same amount of aid that the world provided to the continent in 2021.
The Covid-19 pandemic, Russia’s invasion of Ukraine and the impact of climate change mean countries have been hit by repeated crises with no time to rebuild their resilience and the world is not stepping up to help.
“We are at a real tipping point,” said Smith, “in terms of how the world works going forward –whether we are going to see growing gaps between rich and poor or we are going to start to see a real global economy.”
Ekhosuehi Iyahen, the secretary general at the Insurance Development Forum, revealed that just 1% of financing for shocks and disasters is pre-arranged. So, when a crisis hits there is a scramble to decide where the necessary resources will come from. This goes to the heart of the need to build resilience.
Taking action is in everyone’s interest. It is “naive”, said Iyahen, to believe that these global crises are only relevant for developing countries. When floods hit Thailand, that impacted the country’s car manufacturing industries with a vast impact across the world.
Political will for global cooperation
Part of the problem is that we live in a world where many governments see global goodwill as bad politics. The Covid-19 pandemic is a good example of this, said Smith, as it was politicised very early on as a geopolitical issue rather than a biological challenge.
There remains a sense that countries are turning inward at a time when we should be thinking and acting outward – and there should be a much greater sense of urgency. One positive change is that there is a new head of the World Bank. While Ajay Banga will not be able to change things in 24 hours, he will bring fresh energy to the challenge.
There is also growing consensus, led by Mia Mottley, the prime minister of Barbados, on the need for advance investment so countries aren’t hit so hard by future shocks. Iyahen described the concept of pre-arranged triggers for insurance products - so, for example, when a category four hurricane hits an island nation, this will automatically release agreed funds. Currently, funding usually only comes through six to nine months after the hurricane strikes.
Smith also raised the argument that debt servicing could be automatically suspended if a country is hit by a major crisis. These ‘pause clauses’ would help governments plan and sustain their financing rather than having to stop funding areas like education when disaster hits.
A porridge of initiatives
Eleanor Hevey, associate director at the Centre for Disaster Protection, said it was important to ensure coherence in climate and humanitarian finance that didn’t turn into a “porridge” of different initiatives.
Smith, who has worked as a government official as well as an advocate, backed this point, saying that going to an official with a list of 27 items has a much lower chance of success than a 100-strong coalition forming three key requests.
Smith also talked about the importance of better messaging – ‘polycrisis’ as a term, for example, does not capture the imagination – and the need to mobilise the public. There is a firm and growing commitment to basic justice and fairness, she said. Organisations must show politicians that most people don’t think turning inward is good politics.
Banks and begging bowls
Do we need a new type of bank? Daniel Clarke, director of the Centre for Disaster Protection, said it was fundamentally challenging for banks to stop treating disasters as financial surprises.
While the principle of insurance is about sharing risk, the problem of relying on banks for advance crisis funding is that it could threaten a bank’s credit rating.
For example, concepts like pause clauses after hurricanes that came out of the Bridgetown Initiative are clear requests but will be difficult for organisations like the World Bank to deliver without threatening their AAA credit rating.
So, if we can’t turn to the banks for this, where should we turn for pre-arranged finance? Right now, said Clarke, “we have an international system based around banks and begging bowls.”
Iyahen said there might be reservations about a new global institution based on risk sharing, but that there was “tremendous” scope for new partnerships in terms of how the world can share and manage risk. Right now, a lot of the effort is piecemeal and not at the required global levelRight now, a lot of the effort is piecemeal and not at the required global level.
Hope springs
Despite the lacklustre progress in the World Bank and International Monetary Fund Spring Meetings in April, Smith said she saw hope because the need to tackle these issues was “coming from everywhere”, from the developing world to the G20. “The ground is fertilised,” she said. “What we need to do is figure out how to pull these strands together.”
She said the more data that could be collected to show what happens as a result of action - and inaction would be absolutely key. Smith had three suggestions on how to break the current debt crisis (one that is the result of shock after shock):
Stop pretending that disasters are surprises. Decide how to invest now to reduce the shock of disasters yet to come, which reduces debt increases in the longer-term.
Leverage more capital. Sometimes that will involve debt, but if you can get a return, sometimes it’s worth it.
Step back and look at wider problems in the system that amount to basic unfairness. For example, give better representation to low and middle income countries on boards and institutions like the G20. “That's a game changer… because the perspective you have in the room informs the solutions you devise.”
Five essential points to navigate global challenges
There are five essential points to consider as we navigate the challenges ahead. Firstly, we must transcend political boundaries and shift our focus from domestic policy towards fostering global goodwill. Secondly, it is crucial to frame these challenges in a positive light and consider the opportunity costs involved. Thirdly, preparedness for crises should be a priority, emphasising the importance of proactive measures. Fourthly, effective communication is key in conveying the implications of these issues to people worldwide. Lastly, we must narrow our focus and prioritise the specific needs of the world as we navigate the complexities of this year. By addressing these points, we can forge a path towards a more resilient future.
You can watch the event again here.