Tackling sovereign debt for effective climate action: Towards a European agenda

Karim Karaki and Alfonso Medinilla provide eight recommendations that the EU could pursue to tackle debt sustainability in the Global South and maintain the momentum for ambitious climate action.

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    40% of African countries today are in, or at high risk of, debt distress.
    Authors

    Summary


    This policy brief provides eight recommendations that the EU could pursue to tackle debt sustainability in the Global South and maintain the momentum for ambitious climate action.

    There has been no shortage of warnings on the unsustainable debt burden in the Global South. ​​40% of African countries today are in, or at high risk of, debt distress. This debt crisis is linked to the climate crisis. The effects of climate change push countries to borrow more and drive up the costs of capital, leading to a vicious cycle between sovereign debt and climate risk.

    Effective global climate action requires a rapid increase in the mobilisation of international climate finance, as well as fiscal space and affordable capital to implement far-reaching economic reforms. Both are increasingly out of reach for a growing number of countries.

    While EU member states only hold some of the cards when it comes to debt restructuring and relief, they can play a role in moving the agenda out of its current deadlock. However, they will need to shift gears in their diplomatic action ahead of COP27, coordinating positions and working towards strong new commitments on debt reform.

    Climate change and green transition
    Climate crisis
    Climate finance
    Climate, energy and food
    Debt
    Economic recovery and transformation
    Economy and trade Finance and investment
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