As Larry Elliott notes in the Guardian this morning:
Urgent action is needed to prevent record debt repayments by the world's poorest countries developing into a full-blown crisis, the World Bank has warned.
The Washington-based multilateral body said the escalating cost of servicing past borrowing caused by rising interest rates was siphoning money away from spending on health, education and tackling the climate crisis.
This matters, enormously.
First, it shows the disastrous impact of US Federal Reserve interest rate policy in large parts of the world that pay interest on dollar-denominated debt but who have not suffered the inflation that this misguided policy was meant to tackle. The spillover consequence is of staggering proportion.
Second, it makes clear the scale of the problem facing the next climate COP. COP28 might have staggered to a close, with a better-than-nothing but far from good enough deal on phasing down the use of fossil fuels, but the next COP is on climate finance.
As is all too clear from the Labour Party's lame attitude towards financing the costs of climate change in the UK, which treats the issue as an optional extra and not as an imperative, very few politicians have come even remotely close to tackling this fundamental issue.
For some time, Colin Hines and I have been doing so through our work as Finance for the Future, which is the publisher of the Taxing Wealth Report 2024. During that work, which followed on from our mutual involvement in writing the first ever Green New Deal, we have suggested that the answer to climate funding is to be found in QuEST - which stands for:
- QE
- Savings
- Tax
There are no other options, in my opinion: ultimately, those three summarise the sources of the funding required. Governments either create the money needed for this purpose, or they redirect savings to tackle it, or they assist countries that cannot necessarily use their own currencies to meet all the costs that they face in raising extra tax revenues.
I will be summarising this work in a new publication - maybe a book - next year. Thinking about internationalising these ideas will be a key part of that thinking.
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I wondered when you were going to comment on this and I’m pleased to see it.
I was dismayed by reports on R4 that the COP28 backlash had involved African states who want to use oil/carbon to build their economies, raise their standards of living, pay down World Bank loans.
The facts are that making money using carbon will destroy the planet which in the end will destroy capitalism – making money – as well.
So, we need a new cash injections somewhere – everywhere – to change the mode of production.
My view? We should be giving these states money to go green instead and/or issuing debt jubilees.
Let’s remember why we can do this shall we?
In 2008 states had to print money – interest free and under no obligation to pay it back – for private financiers and banks all around the world because of corrupt and unthinking practices in mortgage based equity and insurance markets.
The private bankers got their free cash for f*****g things up.
The world needs a cash injection to stop us all from being f****d up.
What’s good for the goose is good for the gander.
Let’s never forget 2008. It’s not about the bankers who are as a reprehensible bunch of human beings you could ever meet, it’s about the fact that they got unlimited help from our governments. That was the lesson. It reified that states/central banks have the real power.
The planet needs unlimited help now – not loans – it needs free money, investment (let tax deal with inflation). It is time to use that power again. To make it loan based would be a big mistake.
If bankers can get free money in their own greed created crises – then so can the rest of the world on crucial issues like carbon. There is no excuse as far as I can see for any other response.
All I see is double standards that have to be got rid of. We seem only interested in the metrics of making money out of money – not solving problems with money, even to secure our future.
It’s a pathetic way to die out.
Thanks
And we shouild remember that IMF quotas are effectuvely a form of QE – but they are hiopelessly unfairly allocated
Africa & country risk. In most/many/all countries the cost of electricity from renewables is << cost of elec from fossil sources.
The cost of a fossil power station is small compared to the cost of fuel. Country risk for the project is reduced because fuel is paid on a as-used basis.
Renewables, by contrast, need a medium term (circa 10 years) contract to cover the close to 100% up-front capital cost.
To give you a feel for how low elec from PV can be: the best projects in Portugal or Spain deliver elec @ around 1.5pence/kWh.
Sure you need some storage bolted onto that to cover sundown-sunup. The reality is that renewables in Africa can deliver very very low cost elec.
The question then becomes, how to cover country risk. Who does that?
As a side comment: South Africa had an excellent renewable auction scheme – but it has hit the rocks because RES in SA tends not to provide the brown enevelopes needed by the SA body politic. Thus: how to deliver to people in Africa the clean energy they deserve whilst side-stepping political shennanigans.
Thanks for that Mike – to be clear all I am addressing is the complaint I heard from a female representative of the Nigerian government.
The answer seemed obvious to me.
And the answer is to stop seeing returns as merely financial.
What cost is the future?
I bet the insurance industry has an opinion on that.
You’re right about the injustice of the Washington Consensus and Bretton Woods institutions – especially the IMF with its ‘conditionality’ and ‘structural adjustment’ demands (ie. neoliberal, free trade globalisation, labour market reform and related impositions). Even the World Bank can be similar, depending on the part of the WB Group the client’s allowed to deal with.
The Highly Indebted Poor Countries need huge injections of capital for mitigation and adaptation measures. (Another country representative at CoP, from Uganda, also spoke about needing to generate revenue from their fossil fuels: but as well as adding to CO2, how much of that revenue would they actually get?!)
All the HIPCs and several others deserve both a big Debt Jubilee (and a ‘haircut’ imposed on their foreign commercial bank creditors and vulture funds) – and a source of cheap loans (and ideally grants; perhaps by way of a serious-sized loss and damage fund from historic polluters, the developed countries). They don’t have the existing capacity to produce the equipment for renewables, so in the short term a significant part of these funds will anyway come straight back to the donors as payment for imports. And then the LDCs should be allowed to develop their own higher-value-added industries, and innovations and IP.
The West should get on with this as a strategic priority, or many of these HIPCs and lower-middle income countries will fall in with the BRICS.
My only quarrel is with the word “funding”. Unfortunately it implies raising the funds before taking action.
What we need is pre-emptive action to save the additional costs down the line if nothing is done.
This implies recognising now the huge liabilities on the national balance sheet if nothing is done.
Assets could then be created to reduce these liabilities at nil cost.
Please correct me If I have missed something.