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SUMMARY of the Article “Climate debt trap,” by Jamil Ahmad, Dawn, June 15th, 2024

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The article explores the severe challenge of heavy and rising debt faced by developing nations, which significantly hampers their efforts to tackle climate change, reduce poverty, and pursue economic development. Between 2010 and 2022, the external debt of 118 low- and middle-income countries doubled to $3.1 trillion, constituting about 15% of their GDP. In 2022 alone, these countries spent $443 billion servicing public debts, with this figure expected to rise in the coming years. Factors such as inflation, high interest rates, the energy crisis, and economic uncertainty post-COVID-19 have exacerbated this situation. The high debt service payments limit the fiscal space necessary for investments in climate action and sustainable development, pushing many developing nations toward default. This liquidity crisis sidelines climate and environmental priorities, posing global risks including exacerbated poverty, food insecurity, water scarcity, and health issues. To address this, immediate debt relief is suggested, freeing up fiscal space for climate and development investments. Options include lowering borrowing costs, extending long-term loans, and debt swaps for climate actions. The V20 group of climate-vulnerable countries proposes a carbon tax on major economies to fund sustainable investments. However, lasting solutions require a comprehensive review and overhaul of the international financial system, which is outdated and laden with strict conditions. UN Secretary-General António Guterres advocates for revamping the global financial architecture, and the Bridgetown Initiative has proposed reforms. The Sustainable Development Goals (SDG) stimulus package suggests $500 billion annually in tackling debt distress, scaling up long-term financing, and expanding contingency financing. Political and technical forums, including UN climate change conferences, World Bank, IMF meetings, and other international summits, are actively discussing these issues. The article concludes that without urgent reforms and debt relief, the climate debt trap could transform into a “climate death trap” for the world’s poor.

Easy/Short SUMMARY:

The article discusses how rising debt in developing countries makes it hard for them to fight climate change and reduce poverty. These countries owe a lot of money and spend a large part of their income on debt payments, leaving little for important projects. The article suggests solutions like debt relief, lowering borrowing costs, and debt swaps for climate actions. It also calls for a complete overhaul of the international financial system to better support these nations. Without these changes, the heavy debt could lead to severe problems for the world’s poor.

SOLUTIONS of The Problem:

Immediate Debt Relief

Providing immediate debt relief to developing nations can free up resources for climate action and sustainable development. This includes canceling or reducing the debt burden to create fiscal space.

Lower Borrowing Costs

Lowering the interest rates and extending the repayment periods of existing loans can make it easier for developing countries to manage their debt and invest in necessary climate projects.

Debt Swaps for Climate Actions

Implement debt-for-climate or debt-for-nature swaps where creditors forgive debt in exchange for commitments to invest in environmental conservation and climate resilience projects.

Carbon Tax on Major Economies

Implement a global carbon tax on major economies and use the revenue to support sustainable investments in climate-vulnerable countries, as proposed by the V20 group.

Overhaul of International Financial System

Revise and update the international financial system to remove strict conditionalities and make funds more accessible to developing countries. This includes a comprehensive review of sovereign debt mechanisms.

SDG Stimulus Package

Adopt the Sustainable Development Goals (SDG) stimulus package, which proposes $500 billion annually to tackle high debt costs, scale up long-term financing, and provide contingency funds for countries in need.

Strengthening Multilateral Development Banks

Enhance the capacity and reach of public development banks, including multilateral development banks, to provide long-term financing for sustainable development projects in developing nations.

Policy Integration

Ensure that climate action is integrated into economic policymaking at national levels, making it a central focus of development strategies.

International Collaboration

Foster international cooperation and dialogue through forums like the UN climate change conferences, World Bank, IMF meetings, and other international summits to address the financial challenges faced by developing countries.

Public and Private Sector Partnership

Encourage partnerships between the public and private sectors to mobilize additional resources and expertise for sustainable development and climate resilience projects.

IMPORTANT Facts and Figures Given in the Article:

• Total external debt of 118 low- and middle-income countries doubled to $3.1 trillion in 2022 from $1.5 trillion in 2010.
• In 2022, developing countries spent $443 billion to service their public debts.
• 2024 is projected to be the costliest debt service year yet this century.
• About 50 developing countries are sliding towards default due to high debt payments.
• UN Secretary-General António Guterres calls for a complete overhaul of the global financial architecture.
• The Sustainable Development Goals (SDG) stimulus package proposes $500 billion annually for development financing.

MCQs from the Article:

1. What was the total external debt of 118 low- and middle-income countries in 2022?

A. $1.5 trillion
B. $3.1 trillion
C. $443 billion
D. $500 billion

2. How much did developing countries spend on servicing public debts in 2022?

A. $443 billion
B. $1.5 trillion
C. $3.1 trillion
D. $500 billion

3. Which group proposed imposing a carbon tax on major economies to fund sustainable investments?

A. G20
B. United Nations
C. V20
D. World Bank

4. What does the Sustainable Development Goals (SDG) stimulus package propose annually?

A. $443 billion
B. $500 billion
C. $1.5 trillion
D. $3.1 trillion

5. Who called for a complete overhaul of the global financial architecture?

A. Bridgetown Initiative
B. António Guterres
C. V20 group
D. World Bank

VOCABULARY:

1. Alleviate (verb) (کم کرنا): Make (suffering, deficiency, or a problem) less severe.
2. Vagaries (noun) (غیر متوقع): An unexpected and inexplicable change in a situation or in someone’s behavior.
3. Ramifications (noun) (نتائج): Consequences or outcomes that result from an action or decision.
4. Relegated (verb) (پست کرنا): Assign to a lower position; reduce in rank.
5. Liquidity (noun) (سیالیت): The availability of liquid assets to a market or company.
6. Contingency (noun) (ہنگامی حالت): A future event or circumstance which is possible but cannot be predicted with certainty.
7. Fiscal (adjective) (مالی): Relating to government revenue, especially taxes.
8. Distress (noun) (مصیبت): Extreme anxiety, sorrow, or pain.
9. Polluters pay principle (noun) (آلودگی کرنے والے اصول): The principle that those who produce pollution should bear the costs of managing it.
10. Overhaul (verb) (تجدید کرنا): Take apart in order to examine it and repair it if necessary.
11. Stimulus (noun) (تحریک): Something that incites to action or exertion or quickens action, feeling, thought, etc.
12. Inclusive (adjective) (جامع): Including all the services or items normally expected or required.
13. Mechanisms (noun) (طریقہ کار): Processes or techniques for achieving a result.
14. Conditionalities (noun) (شرائط): Conditions attached to the provision of benefits or support.
15. Confronted (verb) (سامنا کرنا): Face up to and deal with a problem or difficult situation.
16. Tabled (verb) (پیش کرنا): To present formally for discussion or consideration at a meeting.
17. Momentum (noun) (رفتار): The impetus and driving force gained by the development of a process or course of events.
18. Fiscal space (noun) (مالی جگہ): The flexibility of a government in its spending choices, and its ability to provide resources for public purposes.
19. Repayment periods (noun) (ادائیگی کی مدت): The length of time over which a loan is scheduled to be repaid.
20. Climate resilience (noun) (ماحولیاتی لچک): The capacity of social, economic, and environmental systems to cope with hazardous events or disturbances related to climate.

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