The world needs to rethink the international financial system to provide debt relief to countries hit by devastating and costly climate impacts like Pakistan, UN chief Antonio Guterres said on Monday.
The catastrophic floods that submerged a third of Pakistan this year have displaced millions of people, submerged large swathes of important farmland and destroyed homes, roads and bridges.
The disaster caused more than $30 billion in damage and economic losses, according to World Bank estimates, and added pressure to an already struggling economy.
“Pakistan deserves massive support directly from the international community,” Guterres said during a packed meeting with Pakistani Prime Minister Shehbaz Sharif at the UN COP27 climate summit in Egypt.
Guterres again supported Loss and Damage funds to help vulnerable nations deal with the accelerating impacts of climate change.
But he said the world needs to go further and rewire how countries access finance, particularly from the multilateral development banks.
“It is important to review the functioning of the international financial system so that Pakistan can access effective debt relief,” he said, as well as access “concessional financing” needed for the “huge” reconstruction effort.
– “Billions to trillions” –
Pakistan, already facing a cost of living crisis, a falling rupee and dwindling foreign exchange reserves, saw inflation spike in the wake of the floods.
Rating agency Moody’s later downgraded its credit rating, saying the floods had exacerbated Pakistan’s liquidity and external credit weaknesses.
Guterres said Pakistan was a “victim of being a middle-income country,” meaning it did not have access to sufficient debt relief.
The UN chief called for agreements under which the country could swap debt payments for investments in rehabilitation and reconstruction.
Guterres also said the wealthy G20 nations, which dominate the boards of the International Monetary Fund and World Bank and are meeting in Indonesia next week, should press ahead with reforms.
His calls echo those of Barbados Prime Minister Mia Mottley, who said on Monday that “the world still looks too much like it did when it was part of an imperialist empire.”
Mottley called for a “new deal” for the Bretton Woods financial system after World War II, saying lending should be expanded “from billions to trillions”.
While wealthy nations can borrow at interest rates between 1 and 4 percent, nations in the Global South have to be burdened with interest rates of 14 percent, severely constraining emerging economies’ ability to meet their climate goals, she noted.
What she called “fault lines” in the global industrial strategy dominated by wealthy nations, meanwhile, limits developing countries’ access to renewable energy technologies.
“The Global South remains at the mercy of the Global North on these issues,” she said.
In recent weeks, the IMF announced financing deals with Barbados and Costa Rica under a new arrangement called the Resilience and Sustainability Trust (RST).
The Washington-based lender intends to mobilize $45 billion for a new facility funded by member governments and provide 20-year loans to about 140 eligible low- and middle-income nations.
