The writer is prime minister of Barbados
On October 10 2008, G7 finance ministers and central bankers met at the US Treasury in Washington as the greatest financial crisis since the Depression unfolded. Those gathered recognised the moment and grasped it. They tore up the prepared communiqué and wrote another: one of the shortest, most influential on record. The first point read, “We agree to take decisive action and use all available tools.” And they did.
Since then, G7 central banks have purchased $25tn of government bonds, avoiding another depression. On that day and the days that followed, they showed that humanity is not limited by ambition or ability.
Today we are in the throes of another crisis — an even bigger one. The Intergovernmental Panel on Climate Change tells us that the Earth’s average temperature is 1.1C above where it was before European industrialisation. And at 1.5C, the earth’s chemical, biological and physical systems destabilise.
Between the Tropics of Cancer and Capricorn, rising temperatures and sea levels have already made floods and droughts more devastating and created new problems, from climate refugees to locust plagues to saltwater intrusion in freshwater wells. My country, Barbados, is on this frontline, where a storm can destroy 100 per cent of our national income in a few hours.
But the frontline is moving towards the industrialised north, where the resources to make the investments in climate mitigation we need reside. It has not reached those countries yet, but when it does, it will be too late. If, 14 years ago, governments had instructed their central banks to purchase bonds that financed climate mitigation, instead of ordinary government bonds, we would by now be halfway to ending the climate crisis.
When the G7 meets again in Bavaria on June 26, the war in Ukraine and food and energy inflation will dominate the conversation. But the biggest crisis facing humanity must also be firmly on the agenda.
Today, multilateral development banks, such as the World Bank, can only lend on concessional terms — low-interest rates and long repayment periods — to the poorest countries. But, partly as a result of globalisation, more than 70 per cent of the world’s poor do not live in the poorest countries. And because of the climate crisis, middle-income countries on the frontline are vulnerable to losing everything from climatic events, or else of sinking permanently below the waves.
Expressing sympathy afterwards is too late. Climate-vulnerable countries need funds now to build defences. And the G7 can make a difference by widening the eligibility for concessional lending to include climate vulnerability.
The poorest countries need all the support they can get. Current efforts to achieve the UN’s sustainable development goals require additional financing. If the G7 were to agree to channel part of the almost $1tn of special drawing rights, issued by the IMF to help central banks lend their reserves, to multilateral development banks, then the latter could lend $500bn more.
The countries meeting in Bavaria, plus the former Soviet Union, account for almost 50 per cent of the stock of greenhouse gasses that cause global warming. But the costs of dealing with the climate crisis rests on the tiny balance sheets of frontline states that made next to no contribution to the problem.
We need a new financial architecture that can better respond to the current reality of massive vulnerability to external shocks. G7 countries should set the market convention by adopting Barbados-style natural disaster clauses in all of their government bonds. Under these clauses, debt servicing is automatically suspended when an independently verified disaster hits and put back on at the end of the term with compensating interest.
If every country had had such clauses during the pandemic, developing countries would have had access to a substantial store of additional liquidity. Instead, constrained by the existing debt architecture and fearful of a messy rescheduling, developing countries accounted for only 5 per cent of the global fiscal and monetary response.
Finally, we need a new and separate balance sheet on which the costs of addressing external problems sit, instead of on the balance sheets of the most vulnerable countries. This global balance sheet could be funded through the issuance of new climate instruments where part of the return is a verifiable amount of greenhouse gases reduced or removed, or measurable climate adaptation achieved.
This is all unprecedented, but doing nothing is the riskiest option. The wave is coming.