Bangladesh should champion debt justice

Bangladesh's strategic position at the intersection of the Bay of Bengal and the Indian Ocean has increasingly drawn global attention for geopolitical and geostrategic reasons. As we navigate an increasingly multipolar world marked by a decline in U.S. economic and military dominance, emerging powers such as China, Russia, India, and Turkiye are reshaping international relations and the global order. 

In light of this evolving landscape and the recent July Uprising that ended Sheikh Hasina's 15-year authoritarian rule, Bangladesh must now craft its diplomatic approach that embodies the aspirations of a new Bangladesh and maximises its economic and security interests.

In 1974, then Prime Minister Sheikh Mujibur Rahman adopted the foreign policy dictum 'friendship to all, malice towards none' for the newly independent Bangladesh. It was to express his immediate support to the Non-Alignment Movement group rather than joining the Eastern or Western bloc during the Cold War. Does this notion of 'friendship to all' bear the same relevance in today's multipolar reality?

Is it realistic when unhindered environmental injustices, climate change, and other transnational threats are posing challenges to Bangladesh as well as to other Global South countries' progress? 

Also, there are several ongoing conflicts that are regional and global in scope as they involve many state and state-sponsored actors. In this context, Bangladesh, of course, should not take policies that show enmity towards any country. However, the act of balancing with major powers is a tricky one that is fraught with challenges. Bangladesh must attempt to strengthen its strategic partnership with the countries that safeguard its economic and security interests without undermining its sovereignty.

Forecasts indicate that developing countries could face economic losses ranging from $128 billion to $937 billion annually by 2025. The Asian Development Bank projects that Bangladesh could see a 9% reduction in GDP by the end of the century due to climate change. Tropical cyclones alone cost the nation approximately $1 billion each year. 

Moreover, nearly 80 low- and middle-income countries are at risk of debt distress; among these countries, 75% are classified as climate-vulnerable. The Vulnerable Twenty Group (V20), which includes Bangladesh, has experienced a staggering $62 billion increase in debt-related costs over the past decade. This is severely impacting growth as climate adversities inflate both public and private investment costs.

Bangladesh, like other climate-vulnerable countries, finds itself ensnared in a vicious cycle of a 'climate debt trap' as it receives 70% of climate finance in the form of loans. This cycle diminishes the fiscal capacity to respond to climate disasters. They struggle to finance sustainable development and climate adaptation, face growing vulnerability to climate change impacts and financial shocks, and endure higher debt interest rates and increasing indebtedness. Thus, it prevents these countries from achieving the Sustainable Development Goals (SDGs) and making any genuine socio-economic progress. 

Organisations for Economic Co-operation and Development (OECD) countries promised to mobilise $100 billion in climate finance annually by 2025. Despite this promise, reports indicate that only $92 billion in public climate finance was delivered in 2022. The Global South is caught in this new "climate debt trap," as funding comespredominantly— more than70%—inn the form of loans rather than grants. This further exacerbates the debt situations of low- and middle-income countries.

Furthermore, 'conditionalities' imposed by international financial institutions on loans—such as cutting public services, reducing social protection, and forcing market liberalisation—have compelled the countries to exploit their natural resources and implement harmful austerity measures. For instance, the WB and IMF have financed $4.8 billion and advised 100 countries accordingly to expand fossil fuel infrastructures, even after the Paris Agreement came into action. 

A recent example of these conditionalities is the $4.7 billion loan approved by the IMF for Bangladesh, which required $1.4 billion to be allocated specifically for climate-related expenses, limiting its use to the National Adaptation Plan (NAP) and Delta Plan 2100. However, experts have criticised the Delta Plan as it was designed without any hydromorphological study, which could negatively affect the socio-ecological balance of the Bengal Delta.

Currently, Bangladesh spends twelve times more on debt repayment than on climate change mitigation and adaptation efforts. As climate change hinders Bangladesh's ability to achieve its economic goals, climate diplomacy should become a cornerstone of Bangladesh's foreign policy. Specifically, the country should prioritise the 'debt justice' movement in its diplomatic agenda. Bangladesh can pursue this goal in three key ways. 

First, in bilateral and multilateral forums, Bangladesh should assertively negotiate with Global North countries for the cancellation of debts owed by climate-vulnerable nations. This would empower these countries to allocate more resources toward climate action, breaking the cycle of debt distress and enhancing economic stability.

Second, G20 countries initiated the Common Framework for Debt Treatments (CFDT) to come up with a plan for all creditors to restructure debt for the countries grappling with unsustainable debts. Unfortunately, this format only listed 73 poorest countries and excluded most of the middle-income but severely climate-vulnerable countries. 

It further excluded any private creditors so that only three countries successfully applied for debt restructuring. The Head of the Interim Government in Bangladesh, Professor Muhammad Yunus, can utilise his positive image to pursue the Western governments and other creditors, particularly G20 countries, to redesign the CFDT more holistically or to initiate another debt relief or restructuring mechanism. 

Third, Prof Saleemul Huq noted how Bangladesh's pre-COP workshops and meetings arrangement with all sub-groups under G77 plus China to discuss their common grounds and concerns helped the Global South countries to reach a milestone in agreeing on the point of Loss and Damage Fund establishment in the United Nations Framework Convention on Climate Change (UNFCCC). 

Also, Prof Huq emphasised persuading other climate-vulnerable countries through regional or interest-based platforms like the Climate Vulnerable Forum (CVF) or V20. Bangladesh should work together with civil society leaders, activists, and climate advocates to elevate the debt justice issue on the international stage.  

In conclusion, Bangladesh must consider the complex dynamics of debt distress and climatic threats as an integral element of its climate diplomacy. Bangladesh would be able to pursue the journey of becoming a climate-resilient nation if it could break the vicious cycle of the climate debt trap. 

Umme Sayeda is a researcher and advocate for ecological justice. She founded the Ecological Policy Nexus (EPN) and currently works with the Catalyzing Sustainable Transformation (CAST) Network, an action and policy research institute. 

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.