Avinash Persaud, 17 March 2021

For the countries on the frontline in the war against climate change, there is a nasty nexus between climate change and debt. The cost of environmental damage, the loss of revenues from a natural disaster, and the high price of building back better all contribute to higher debt. This column proposes three ways to break this climate–debt nexus: (1) redistribute special drawing rights using a new classification of vulnerability; (2) incorporate natural disaster clauses into multilateral development banks’ lending arrangements; and (3) use the unused special drawing rights of the world’s strongest countries to recapitalise regional development banks to finance resilience in the vulnerable countries without adding to their debt.

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