IMF: climate and debt; Ethiopia and Common Framework, EU and DSSI
I hope this email finds you well.
Please find below some resources and recent news I thought would be interesting to some of you:
- World Bank, IMF to consider climate change in debt reduction talks (Reuters): both Malpass (World Bank) and Georgieva (IMF) giving signs that they are discussing how to link "debt relief to climate resilience and investment in low-carbon energy sources".
- In relation to this, the IMF published last friday this blog "Why Climate Change Vulnerability Is Bad for Sovereign Credit Ratings" following a report published in december on what some others have already been demonstrating (see for instance these two reports published by Bob Buhr and Ulrich Votz in 2018, and also by Ulrich Votz and others in 2020). Surprisingly, the IMF "finds" that "countries with greater vulnerability to climate change face a higher likelihood of debt default". The blog is based in a series of IMF working papers:
- Feeling the Heat: Climate Shocks and Credit Ratings (december 2020)
- An Apocalypse Foretold: Climate Shocks and Sovereign Defaults (November 2020)
All three papers (not the same document, I've checked) are produced by the same authors Serhan Cevik ; João Tovar Jalles
- Also on the IMF but on Common Framework, the Fund has also announced that they've reached a Staff level agreement on the "on policy measures for the completion of the first and second reviews under the ECF-EFF arrangements" for Ethiopia. As Bloomberg reports, and the IMF statement acknowledges, the Fund is therefore backing Ethiopia's request for debt reprofiling* under the Common Framework. "To strengthen debt sustainability, the authorities aim to lower the risk of debt distress rating to moderate by reprofiling debt service obligations. In this context, the Fund welcomes Ethiopia’s request for debt treatment under the G20 Common Framework".
* reprofiling meaning they do not expect debt cancellation, only changes in the terms of payment (basically time).
- Finally, if you haven't seen it, the EU supported recently an extension of DSSI till the end of the year, as well as the issuance of SDRs.
I hope this is useful!