Seham Farouk Writes: Climate/SDGs Debt Swap : A way to solve the global triple crisis

In light of the successive crises the world: Implications of the Covid-19 pandemic, the global food and inflation crises that the world is suffering nowadays, which we didn’t witness decades ago, in addition to the climate change crisis threats all countries, especially developing countries, which are greatly affected by changes climate at all levels.

All countries are currently are looking for an innovative way out of these crises and their consequent negative effects on their economies, especially there is a potential global public debt crisis, as In 2020, we observed the largest one-year debt surge since World War II, as global debt rising to $226 trillion as the world was hit by a global health crisis and a deep recession, rose by 28 percentage points to 256 percent of GDP, in 2020, according to the latest update of the IMF’s Global Debt Database.

There is no way out of the current crisis, which affects all countries – especially developing countries that don’t have sufficient fiscal space to deal with the current crises – except through a global cooperative approach by several proposed solutions that will be reviewed successively. The Most important approach that can be followed, Climate/SDGs Debt Swap.

Climate/SDGs Debt Swap launched by United Nations converts national debt-serving payments on foreign debt into domestic investment for implementing climate-resilient projects through collaborative arrangements between debtors, creditors and donors.

For debtor countries, it provides relief from the payment of interest on external debt, while increasing sustainable public investment in climate-resilient projects that advance the SDGs and the Paris Agreement. For creditors, the amount of the debt swap allocated for climate-resilient projects increases the official development assistance disbursement/climate finance pledges that accelerate the implementation of the SDGs and the Paris Agreement, without adding extra burdens on their budgets , in an attempt to address the negative impacts of Climate change jointly, to mobilize climate finance from rich countries (the main source of pollution) to support low-income countries (which bear a disproportionately large burden of their contribution to global pollution )
Responding to United Nation Call for such initiative in 2020, there are some UN affiliated institutions such as United Nations Economic Commission for Africa (UNECA), Economic Commission for Latin America and the Caribbean (ECLAC) and United Nations Economic and Social Commission for Western Asia (ESCWA) launched their debt for climate initiatives.

For ESCWA, it launched the Debt Swap/Donor Nexus Initiative in December 2020 to support member States from Arab Countries in their struggle with climate finance, high debt burdens, and fiscal pressures that have been exacerbated by the adverse impact of the pandemic.

This initiative aims to achieve the dual objective of debt relief in low- and middle-income Arab countries and improving resources for social and environmental expenditures, which can help accelerate the implementation of the Sustainable Development Goals and the Paris Agreement.

Therefore, Egypt has a golden opportunity to take advantage of these initiatives to reduce its external debt, given the benefits, which may include relieves from interest payment on external debt; increases investment into climate-resilient projects; accelerates SDGs and Paris Agreement implementation; supports national adaptation and mitigation commitments/ argots; increases donor’s support toward climate/green investments; increases sustainable public investment without additional pressure on public budget; promotes economic transformation/diversification/private sector opportunities; increases job creation; and others , provided that this does not affect their public debt sustainability ratings.. To be continued.