The challenge of addressing climate change in developing countries like Pakistan has been compounded by a multitude of economic and structural issues. Heavy and rising debt, inadequate financial mechanisms, and systemic governance issues are major factors that have hindered effective climate action. These challenges and explores why climate change initiatives have struggled in developing nations.
Rising Debt Burden
A significant hurdle for developing countries in tackling climate change is the burden of heavy debt. According to the World Bank’s International Debt Report, the total external debt of 118 low- and middle-income countries doubled from $1.5 trillion in 2010 to $3.1 trillion in 2022, constituting about 15% of their GDP. In 2022 alone, these nations spent $443 billion to service their public debts, and projections indicate that 2024 will see the highest debt service payments yet this century.
This immense debt burden limits the fiscal space available for critical investments in climate change mitigation and adaptation. With about 50 developing countries on the brink of default, their ability to allocate resources towards sustainable development is severely compromised. The situation is exacerbated by rising inflation, high interest rates, energy crises, and economic uncertainties post-COVID-19, which further shrink fiscal capabilities.
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The Debt-Climate Nexus
The inability to address climate change due to fiscal constraints has far-reaching consequences. Inaction in climate and environmental areas poses significant risks to sustainable development, exacerbating global crises in poverty, food security, water, clean air, energy, and health. Developing countries, constrained by their debt obligations, are unable to protect themselves adequately against the impacts of global warming, creating a vicious cycle of vulnerability and underdevelopment.
Proposed Solutions and International Efforts
To address these challenges, several solutions have been proposed:
- Debt Relief: Immediate debt relief can free up fiscal space for climate and development investments. Lowering borrowing costs and extending long-term loans provide necessary relief for these countries.
- Debt Swaps for Climate and Nature: These mechanisms allow creditors to forgo existing debt in exchange for climate or nature-related actions and policies, aligning financial relief with environmental goals.
- Polluter Pays Principle: The V20, a group of 68 climate-vulnerable countries, has proposed imposing a carbon tax on major economies to mobilize finances for sustainable investments in their regions.
UN Secretary-General António Guterres has called for a complete overhaul of the global financial architecture, describing it as morally bankrupt for its failure to address contemporary challenges. The Bridgetown Initiative has proposed several reforms to revamp the international financial system, including a Sustainable Development Goals (SDG) stimulus package of $500 billion annually focused on tackling high debt costs, scaling up long-term development financing, and expanding contingency financing for countries in need.
These proposals have generated significant discussion in political and technical forums, including UN climate change conferences and meetings of the World Bank and IMF.
Pakistan’s Climate Challenge
Pakistan is an illustrative example of the broader struggle faced by developing nations. The country’s federal government has attempted to integrate climate considerations into policy decision-making through the adoption of a climate budget governance system. Finance Minister Muhammad Aurangzeb announced that 7.7% of the Running of Civil Government (ROCG) and 15.3% of the Public Sector Development Programme (PSDP) funds for the financial year 2024-25 are allocated to climate-sensitive areas.
Despite these efforts, Pakistan’s heavy debt burden and economic challenges limit the effectiveness of these initiatives. The finance ministry has undertaken significant steps to tag climate-sensitive budgetary and expenditure data, ensuring targeted allocations to respond to climate risks. However, the overall fiscal space remains constrained, impacting the scale and speed of climate action.
Climate change missions
The failure of climate change missions in developing countries, including Pakistan, is deeply rooted in economic and structural challenges. Rising debt burdens, inadequate financial mechanisms, and systemic governance issues are major obstacles that need to be addressed comprehensively. While debt relief, innovative financial instruments, and a reformed international financial architecture are crucial steps, the urgency of the climate crisis demands immediate and sustained action. Only by alleviating the economic constraints can developing countries effectively combat climate change and work towards sustainable development.
