Climate-hit island pushes to reshape WB, IMF

While conflict and inflation will dominate World Bank spring meetings next week, campaigners are pushing for a redesign of global financial architecture to help countries cope with climate change.

Experts say developing nations are struggling to find the funds needed to stop burning planet-heating fossil fuels and prepare for tomorrow’s climate disasters, as they grapple with rising costs, soaring debts and extreme weather events.

The question is what to do about it, amid international tensions driven by Russia’s invasion of Ukraine and trade tussles between the US and China. Enter Barbados Prime Minister Mia Mottley.

“We believe that we have a plan,” the head of the Caribbean island nation, threatened by storms and sea level rise, told world leaders at the COP27 climate summit in Egypt in November.

Known as the Bridgetown Initiative, the ideas she laid out include using the International Monetary Fund to turn “billions to trillions” in investments to cut carbon pollution, as well as a tax on fossil fuel profits to cushion the economic blows of climate impacts.

While the proposals are still being debated, they have gained traction among the large economies that hold sway over the World Bank and IMF, raising hopes of action in the coming months.

The World Bank is under particular pressure, in the wake of the resignation of chief David Malpass amid questions over his stance on climate change.

French President Emmanuel Macron has embraced the reform push and will seek to keep up momentum with a climate finance summit in June, ahead of Bank meetings and UN climate summits later this year.

Reform plans are gaining momentum because they fill a “policy vacuum” over funding for the global climate response, said Avinash Persaud, the economist running the Barbados campaign with “one and a half people and a spreadsheet”.

‘Burning and drowning’

United Nations climate science experts have said time is running out to invest in the changes needed to limit warming to 1.5 degrees Celsius above preindustrial temperatures.

“Unless money is put on the table, we won’t be able to solve the climate crisis,” said Harjeet Singh, Head of Global Political Strategy at the Climate Action Network campaign group.

Developing countries are already losing “big chunks” of their gross domestic product each year to climate impacts, said Persaud.

“We are burning up and we are drowning in the same year, that’s climate change for you,” he said.

The IMF has created a new loan-based Resilience and Sustainability Trust to help poorer or vulnerable countries boost sustainable growth. Barbados was the first recipient.

The World Bank says it delivered a record $31.7 billion last year to help countries tackle climate change and has started to draft a roadmap for change.

Change the world?’

The Barbados plan seeks to raise those trillions using roughly $500 billion in IMF reserve assets -- known as Special Drawing Rights -- as collateral in a new climate trust, which could borrow cheaply to invest in private sector emissions-reduction projects.

It also calls for multilateral development banks to significantly increase their lending, while stressing that debt arrangements should include, as Barbados has, disaster clauses allowing a country to pause repayments for two years after an extreme event.

And the plan calls for taxes -- for example on fossil fuel profits -- to help countries cope with climate losses and damages.