Heads of state, finance leaders and activists from around the world are converging in Paris to attend a summit which aims to overhaul the world's development banks and help developing countries face the challenges of a warmer and stormier world.
While restructuring debt and reducing poverty will be part of the two-day summit that begins Thursday, climate will be the main driver, with representatives from developing nations in Africa, Asia and elsewhere taking prominent seats at the table.
The World Bank and International Monetary Fund (IMF) have been criticised for not factoring climate change into lending decisions, and for being dominated by wealthy countries like the United States, leaving the out the neediest nations most at risk from global warming.
While those are the primary problems to solve, some doubt the flashy summit – led by French President Emmanuel Macron – will be able to take major strides towards correcting those challenges.
Still, the Summit for a New Global Financing Pact will draw roughly 50 heads of state and government, with more than 100 countries represented.
The Summit for a New Global Financing Pact begins in just a few hours here in Paris.
— Emmanuel Macron (@EmmanuelMacron) June 21, 2023
I can feel it as I receive confirmation of participation and messages from our partners: we can make a huge difference for the planet and against poverty.
Cycle of debt
As the world's poorest countries bear the brunt of the world's debt crisis, at a time when they need more cash than ever to fight climate change, what are the the issues? And what needs to be done?
1. Countries that have the most debt
The poorest nations already had high debt levels before the Covid-19 pandemic, which forced them to borrow more to shore up their economies during months-long lockdowns.
Plus, now they face increases in global food and fuel prices because of the war in Ukraine, and higher interest rates imposed by international banks to combat rising inflation.
In March, the United Nations Development Programme warned that countries are spending more than a fifth of government revenues servicing external debt.
Among the countries with the highest debt – as a percentage of GDP in 2021 – the report mentions Venezuela, with a massive 240 percent, followed by Sudan at 182 percent.
Eritrea, Lebanon, Cape Verde, Suriname and the Maldives are all in the top seven on the list, with 125 percent and upwards.
2. How much do they owe?
Over the past decade the debt of developing countries has more than doubled to $9 trillion (8.19 trillion euros) in 2021, according to the World Bank's most recent international debt report.
3. Who are the biggest lenders?
The Paris club of major creditor governments was formed in 1956 to find ways for heavily-indebted countries to avoid being in default. Its 22 members – all advanced economies – include the US, Japan and most of Western Europe.
But in recent years China has overtaken the traditional creditor nations as the world's biggest lender.
In Africa particularly, China has emerged as a bailout force to rival Western institutions like the IMF. India and Saudi Arabia are among other new creditor nations.
However, according to the World Bank, most of the debt of the poorest countries is now in the hands of private banks.
4. How is debt affecting the climate crisis?
According to the European Commission's expert group on sustainable finance, high debt levels make it harder for developing countries to find the 1.8 to 2.6 trillion euros they need to spend per year until 2030 to meet their commitments on climate change.
Last year, former UN Secretary General Ban Ki-moon underlined that African countries are among the most exposed to the impacts of climate change, in the form of worsening droughts and floods, but they are responsible for only around three percent of global CO² emissions.
5. What can be done?
Efforts to address these issues have focused on global debt restructuring.
In 2020, the G20 group of major economies, which includes China, agreed on a common framework to restructure the debt of poor countries buckling under the impact of Covid.
The process was launched after Zambia defaulted on its foreign debt estimated at $17.3 billion (15.74 billion euros).
But critics say the process has been too slow, with China particularly accused of dragging its feet.
Zambia, which has been in negotiations about its debt for two years, hopes to finally secure a deal this week.
What to expect from the summit
The French organisers of the summit want to show they can keep fighting poverty and meet the challenges of climate change at the same time.
However, it remains to be seen if consensus can be found, and if commitments will be honoured in the future.
The summit will end with a summary of commitments, including a roadmap for what to expect from this year's meeting of the Group of 20 major economies and UN climate conference due to take place in Dubai in early December.
(With wires)
