Poor nations 'squeezed' as debt surges and climate adaptation cash falls short

Summary:

• Adaptation costs likely to rise to hundreds of billions per year
• But climate funding for vulnerable nations is a fraction of that
• Lack of finance a sore point at COP26 climate talks, debt rising

The costs for vulnerable countries to adapt to global warming are up to 10 times higher than available funding, the United Nations said on Thursday, warning rising indebtedness is putting them under more strain in dealing with surging climate threats.

Developing nations alone will need up to $500 billion by 2050 for adaptation, which includes things like building flood defences, planting urban trees and introducing drought-resilient crops, the UN Environment Programme (UNEP) said in a report.

But just a fraction of the money needed is on the table, with the gap widening and the rising cost of servicing debt due to the Covid-19 pandemic preventing countries from spending on crucial measures to adapt to global warming, the report said.

UNEP chief Inger Andersen told reporters on Thursday that vulnerable countries cannot find cheap finance when they most need it to deal with both the pandemic and climate impacts.

"They are really squeezed from all sides," she said. "That is why finding new ways of enabling finance to these countries and more will become absolutely critical."

The report, the latest in a series, said adaptation costs for developing nations are now likely to be "in the higher end" of an earlier estimated range of $140-300 billion annually by 2030, before rising to $280-500 billion per year by 2050.

The world has "missed" an opportunity to invest in more policies and measures to support climate adaptation, as only a small portion of about $17 trillion in Covid-19 recovery stimulus packages has gone into this area.

Henry Neufeldt, the report's chief editor and a senior UNEP researcher, said rising debt is "particularly burdensome" for low-income countries, urging advanced economies to offer more substantive debt relief.

"Adding further debt due to Covid-19 will make addressing adaptation to reduce climate risks even more difficult than it already is," he told the Thomson Reuters Foundation.

Most climate finance currently goes into developing clean energy systems and other ways to curb planet-heating emissions - with only a quarter of nearly $80 billion funding from wealthy states in 2019 allocated for adaptation - and mostly as loans that need to be paid back.

Aid charity CARE International said the UNEP report did not offer ideas on how the adaptation finance gap could be closed.

CARE climate advisor John Nordbo called for a decision at the COP26 climate summit underway in Glasgow that "puts an end to the blah-blah-blah from developed countries on finance for climate adaptation, and puts people first by providing a clear way forward".

'BIGGEST INJUSTICE'

Climate finance is top of the agenda as leaders and negotiators meet in Scotland for the UN COP26 climate talks this week and next, to keep alive a target of limiting global warming to 1.5 degrees Celsius above pre-industrial levels.

UN Secretary-General Antonio Guterres, who has been urging donors to allocate half their climate funding to adaptation, said countries must get faster and easier access to finance, through cutting red tape and being able to access debt relief.

"The solidarity you need is lacking," he told the summit this week, referring to climate-vulnerable nations.

New research this week found 22 of the world's poorest countries would need about $212 billion collectively to implement planned measures to adapt to climate change, but could only borrow one-fifth of that before tipping into debt distress.

This is "nonsensical, immoral and unfair" on countries that have done so little to cause climate change, said Sejal Patel, an economist at the London-based International Institute for Environment and Development (IIED), which published the study.

Many of these governments are using up to 20% of their budget spending to pay off loans, said the IIED.

The debt burden of the world's low-income countries soared to a record $860 billion in 2020 due to the Covid-19 pandemic, the World Bank said in October.

But the International Money Fund and the World Bank have struggled to deliver a long-awaited proposal on debt-for-climate swaps that had been expected before the COP26 summit, with discussions likely to continue for some time.

Debt-for-climate swaps are when the debtor nation, instead of continuing to make external debt payments in a foreign currency, makes payments in local currency to finance climate projects at home on agreed terms.

An advisor at the V20, a group of developing economies vulnerable to climate change, said the non-delivery of the debt-for-climate swaps deal would "undermine confidence" in the global climate talks.

"There's a huge gap between this big fire we are in, and the efforts to put it out," said Sara Jane Ahmed, the V20's financial advisor.

"The biggest injustice is that the finance and the tools like debt-for-climate swaps can exist but are not on the table."