Barbados Leads Talks on Climate Disaster Financing

Written by Ciara Perez

December 5, 2022

Developing nations have been vocal in their burden of the financial costs of climate change – from rebuilding infrastructure when natural disaster strikes, to investing in cleaner industry to combat greenhouse emissions, to paying 3x the interest rates on loans than wealthy nations.

The Barbados Prime Minister, Mia Mottley, has proposed a new process for lending money to developing nations. The plan was initially proposed at COP26 in Scotland last year but has since gained support and momentum. The debt within the developing world has grown, and Mottley’s plan “would make it easier for countries…to get funds to beef up defenses against warming and put off debt payments when disasters strike”. The plan, which “calls for special loan clauses that allow for suspending payments when a county is hit by a natural disaster or pandemic, has been named the Bridgetown Initiative.

The adoption and implementation of the Bridgetown Initiative would accomplish the following:

1. The deferment of payments to creditors, should a developing country be hit by a natural disaster or pandemic, allowing governments to focus funding on relief and rebuilding efforts.
2. A change in risk ratings used by the World Bank and the IMF, lowing interest rates for developing countries.
3. The creation of a Climate Mitigation Trust, backed by $500 billion in special drawing rights, allowing developing countries to take additional private sector loans at low rates “for investment in big climate mitigation infrastructure projects”.

In proposing this plan, Mottley has addressed the root of the issue, which is that poor countries face higher borrowing costs. She told the press that while wealthier countries pay 1-4% interest rates, developing countries pay 12-14% interest rates, creating a disparity. French President Emmanuel Macron is the first leader from a wealthy country to support this initiative.