Climate change will make it harder for countries to repay their pandemic debt, according to researchers at the University of Oxford.
During the pandemic, an estimated $783bn has been borrowed from the private sector through sovereign bonds that mature 30, 50 or 100 years from now.
However, according to the research, 77% of countries have not disclosed the risks they face due to climate change in this period
The researchers have warned that this lack of disclosure could lead to a severe debt crisis.
For example, Saudi Arabia’s bonds will mature in 2060, at this point, lower productivity and higher mortality due to a more extreme climate could cause a 60% drop in GDP.
Severe climate shocks, or even the anticipation of them, could cause government defaults (where governments are unable to repay their debt) and a credit crisis.
Based on this research, the authors have presented three solutions to this oncoming debt crisis:
Thom Wetzer, associate professor of law and finance and director of the Oxford Sustainable Law Programme, said: ‘The covid, climate, and credit crises compound in ways that could create a financial catastrophe during the peak of the climate crisis. This study is a call to action.
‘Countries should transparently disclose climate risks, use the Covid-19 recovery to build climate resilience, and support the most vulnerable borrower countries. It is imperative that we do not leave this burden to future generations – by that time it will be too late.
‘Countries may struggle to pay back their rapidly rising debt because of the impact of climate risks on their economy. A failure to appreciate, disclose, and manage these risks today could cause serious problems in the future. Unlike companies, countries cannot simply cease to exist when bankrupt – their citizens will bear the cost of debt burdens for generations.’
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