How to get more money to address the climate crisis and poverty has been the focus of the annual meetings of the World Bank and the International Monetary Fund (IMF), taking place in Marrakesh in Morocco this week.

Staggering under enormous debt burdens that increased exponentially during the pandemic, African countries appealed for a 10-year moratorium on interest payments and better debt relief measures at the continent’s recent climate summit in Nairobi.

“Africa is now paying more in debt service than the estimated $50 billion a year the Global Center on Adaptation says it needs to invest in climate resilience. These investments are not nice-to-haves — they are vital for building roads, bridges and dams that can withstand torrential rains and floods,” wrote the African Union’s Moussa Faki Mahamat, Kenya’s President William Ruto, and Africa Development Bank’s Akinwumi Adesina in a New York Times article on the eve of the Marrakesh meetings.

“But instead of receiving funds to address the climate crisis, Africa is borrowing at a cost up to eight times higher than the rich world to rebuild after climate catastrophes. This is why Africa urgently needs a pause in debt repayments so that it can prepare for a world of ever greater climate extremes,” they added.

Ajay Banga, appointed World Bank president in June, has acknowledged the need for cultural change at the Bank – a process that started before he assumed office – and used various public forums this week to elucidate his vision for this.

‘Intertwined challenges’ of climate, pandemics and food insecurity

A key concept is addressing “intertwined challenges”. 

“The effort to segregate challenges into poverty, separately from pandemics,  separately from food insecurity, separately from climate change, doesn’t work in practice,” Banga told a media briefing on Tuesday.

“We are seeking approval from our governors to redefine the vision of the bank to be that of eradicating poverty, but on a livable planet. And what we mean by a liveable planet is exactly the challenges of pandemics and climate change and food insecurity and fragility.”

“Climate change tends to mean different things, depending on where you’re coming from,” Banga told a public forum.

The narrow definition addresses how to avoid “carbon-intensive growth, as in the emissions from energy generation, transportation and construction materials”, he added.

But the Global South’s definition is “loss of biodiversity, forestry cover going, less rainfall, challenges with the soil degradation”, exacerbated by weather crises such as hurricanes – which “takes away double digits of your GDP” if you’re a  Caribbean island.

“Africa is a continent where 600 million people don’t have access to electricity so if you don’t get them the basics, it’s no point discussing the alternatives,” said Banga.

“There is the issue beyond energy – of heavy transportation, construction materials, methane emissions. And finally, even if you get all that right in the world over the next 25-30 years, if you don’t get carbon capture right, we’re still dead in 2050.”

How to tackle climate?

The World Bank is putting 50% of its climate money into mitigation, which Banga defined as “the avoidance of future heavy emissions-growth patterns”, and 50% into adaptation, covering the concerns of the Global South.

IMF Managing Director Kristalina Georgiva said that mitigation was somewhat more straight forward than adaptation: “What we could see is technologies being brought in cost terms to a level that they are commercially viable. Take, for example, solar. When we look around, how today, solar energy is becoming massively available.

“Adaptation is more complicated because it is so multifaceted. You need the infrastructure to be climate resilient. You need agriculture to be climate resilient. You need to address so many aspects of it at the same time.”

However, Georgiva said that it was possible to do this, as Bangladesh, which “used to lose thousands and thousands of people in floods”, had done.

“They have built schools to be also places for retreat for people, for animals. They built a system that alerts people. Go there, save yourself and your livelihood. They switched from chicken to ducks because ducks can swim.”

Where will the money come from?

The Bank put around $40 billion into climate last year, but the need is far greater. So where will more money come from?

Banga believes there are three key sources. The first one is subsidies. 

“The world spends $1.25 trillion on subsidising fuel, agriculture and fisheries,” said Banga, adding that while some of these were “critical for the social contract between the government and its citizens”, the number is too high. 

“Europe used to spend close to $60 billion a year on fertiliser subsidies. They’ve now spending the same money with their farmers, but to incentivise them to use less fertiliser. That to me is a clever way of taking a subsidy which was environmentally challenging and converting it to a subsidy that is environmentally useful. And so I just believe that this topic of subsidies needs discussion. It gets lost very easily because of the politics involved.”

The second is voluntary carbon markets, which allow companies, governments, and other groups to address greenhouse gas emissions by buying and selling carbon emission credits.

“The World Bank is a few months away from being able to convert real forestry change into credits on a voluntary carbon market,” said Banga, who described this measure as “the ultimate way of getting money to move in the right direction”.

If the Bank issued certification for carbon credits, this would eliminate “greenwashing” and unlock “green credit”.

The third pillar is private sector involvement, particularly in larger middle-income countries that need to curb their greenhouse gas emissions.

“There are enough private sector investors with projects who would like to be able to invest in those countries,” he added, but the political and foreign exchange risks need to be managed.

Political risk relates to when governments change and this brings about policy changes.

“Foreign exchange risk is more difficult to fix than political risk – we actually have ways including getting the right regulatory policy laid out by my smart ministers and regulators in advance. Ask me about forex risk after a year because right now, I have no clue how to solve that!” said Banga.

What about special drawing rights?

What African leaders really want is for the IMF to channel $100 billion a year in special drawing rights (SDR) to climate and development efforts. SDRs are an international reserve asset issued by the IMF to help supplement a country’s reserves. They are not a loan so don’t add to debt and can be exchanged for hard currency or donated amongst IMF member countries.  

Mia Mottley, the Prime Minister of Barbados, called for an annual $500 billion allocation of SDRs to finance a transition to climate mitigation and climate adaptation policies at the Conference of the Parties on Climate Change (COP26) in November 2021.

A few months earlier, in August that year, the IMF had allocated a historic $650 billion worth of SDR to its 190 member countries to help address the impact of the pandemic. 

High-income countries can channel some of their SDR allocations to low- and middle-income countries, but at present, this reallocation “incorporates conventional IMF lending mechanisms involving new debt and conditionality”, according to the Center for Economic and Policy Research (CEPR). 

In addition, some high-income countries “face domestic legal or legislative hurdles that may prevent them from engaging in bilateral SDR transfers”, adds the CEPR, arguing that “the most accessible, costless, and rapid way to get desperately needed aid to developing countries is through a new allocation of SDRs”.

Thursday marked a Global Day of Action for debt, climate and economic justice observed by various civil society organisations engaged with the topic, some of which demonstrated outside the World Bank-IMF meetings.

Shortly before the start of the meetings, an alliance of civil society groups wrote an open letter to the World Bank and IMF urging them to triple multilateral development bank (MDB) finance in order to achieve global climate goals including “a phase-out of all support to fossil fuel projects by 2024”. 

They also urged the delivery of  $100 billion in SDR, guidelines on pandemic investments to leverage the Resilience and Sustainability Trust (RST), and called on Ministers at Marrakesh to “recognise loss and damage as a critical part of the climate finance architecture and the need for additional sources of financing, including international taxes or levies”. 

While Banga has proved to be approachable and open to dialogue during this week, it remains to be seen whether any of these demands will be met by the close of the meetings on Sunday.