Wildfires of all kinds.
This has been the hottest summer, not just in both of our lives but possibly in 120,000 years, according to leading scientists. Yet it is likely to be the coolest we’ll experience for the rest of our lives.
It’s a startling thought and one to stop on before checking the exits — if we can find any.
That means more heat, more drought and more wildfires like this summer’s devastating blazes in Maui and the Mediterranean basin. But it also means more pressure on a global economy already feeling the strain.
Because the climate crisis unaddressed will become development in reverse, undoing decades of social and economic progress in regions that did nothing to cause it.
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This is a time to plan, not panic. To organise, not agonise. There are strategies we can adopt before the next time we hear someone shout “Fire!” and we realise it’s the global economy itself that has gone up in flames.
Already, the world economy is faltering and fragmenting, with sticky inflation and a cost-of-living crunch continuing to bite hard. And if the still-lingering pandemic and climate change were not enough, the world’s low- and middle-income countries could face their second major food security shock in less than a year.
It’s hardly surprising that more countries across the Global South are losing patience with our model of rules-based freedom and democracy. Long lectures from richer to poorer countries, followed by little investment, just isn’t working as a formula for winning the benefit of the doubt for the idea of liberal democracy.
Consider this: When Greece, with a population of 10 million, faced profound banking and budget problems in 2010, the International Monetary Fund and European Union committed more than 100 billion euros to the rescue and to prevent financial contagion in Europe.
Vastly more was committed by European finance ministers and the European Central Bank. Yet, as the planet burns, as a generation’s progress against poverty in some of the world’s poorest countries erodes, and as thousands if not millions of lives are lost, no remotely comparable effort has been mounted.
A generation ago, we — a rock star and an economist — joined forces with millions of activists, faith leaders and the World Bank, IMF and their shareholders to secure the Jubilee debt deal, which offered budgetary space to countries saddled by debt so large and unyielding that they faced the real threat of collapse.
Now, we come together again because the need is even greater for decisive financial action on behalf of the world’s poorest people. The Group of 20 leaders’ summit in New Delhi offers a chance for us to connect the dots among the climate crisis, growth and development, and the roles they play in geopolitical tensions.
Such strategising is only possible if low-income and vulnerable countries have a say. As we’ve seen time after time at these forums, either you’ve got a seat at the table or you’re on the menu. The African Union must have a permanent seat on the G-20.
With Africa’s population expected to double to nearly 2.5 billion by 2050 and include 1 in 3 of the world’s youths, there can be no global solutions without African leadership and innovation.
As was headlined at Africa Climate Summit in Nairobi, the African continent is home to 60 per cent of the world’s best solar potential, its rainforests absorb more carbon than the Amazon, and it accounts for 71 per cent of global cobalt production and 77 per cent of platinum, all vital to a green transition. Unleash this potential, and we open up possibilities for a cooler and brighter future for everyone.
Big funding squeeze
But that’s not where we are headed. African countries are confronting a “big funding squeeze,” according to the IMF. External finance has dried up, and when African governments aren’t locked out of international capital markets, they face ever-steeper costs to secure new investment.
With rising interest rates, African countries are paying 500 per cent more to borrow from the private market than they would pay if sufficient capital were available from the World Bank. More than half of the low-income countries that are in or at risk of debt distress are in Africa, forcing their governments to choose between servicing debt, investing in their people or protecting the planet.
So, big ideas for New Delhi that would help put out and prevent future economic fires:
— Ramp up all the multilateral development banks, starting with the World Bank. These institutions are unique in their ability to leverage resources. Indeed, loan guarantees that would cost the US federal budget just $1 for every American, or about $300 million, would permit the World Bank to extend its lending by $15 billion. And the efforts of any country are further magnified as all others contribute.
With all the help a world on fire needs, it should not be acceptable that donor contributions to the World Bank’s arm for supporting the world’s poorest countries have failed to keep up with inflation over the past decade. Even more problematic is the reality that, at present, total lending from the development banks is roughly equivalent to the amount they are repaid by developing countries.
During its year-long G-20 presidency, India convened an expert group on the multilateral development banks co-chaired by one of us (Summers), and its report calls for a triple agenda that, if adopted, would be transformative. The world could move to such a triple mandate by embracing global challenges such as climate and pandemics, along with shared prosperity and poverty reduction.
It could respond to the African Finance Ministers’ call for a tripling of the World Bank’s International Development Association facility that provides very low-interest financing to the poorest countries. And it could use the power of modern finance, along with new capital infusions, to triple the volume of available and affordable lending to $400 billion a year.
— The G-20 should demand that the IMF move deeper on debt and further on flexibility. With scores of countries looking over the cliff at debilitating debt crises, the fund needs to accelerate its drive to fashion a solution at scale. The G-20s Global Sovereign Debt Roundtable, co-chaired by the IMF, World Bank and India, as current chair of the G-20, is making some progress, but it is modest and incremental.
Zambia recently reached a deal on its debt — but it took two years. We’re racing against the clock, and the clock is winning. The cost of debt is rising parallel to increases in interest rates, meaning that the price tag for Africa has now increased by $56 billion. It’s like watching your adjustable mortgage rate go through the roof while managing a pay cut.
The IMF also needs to revamp its Resilience and Sustainability Trust, a new facility designed to help countries with constrained budgets tackle global challenges like climate change. As currently designed, it does not enable substantial resource transfers. Only $614 million has been disbursed so far at a time when resource needs are measured in the hundreds of billions and committed future disbursements are less than $5 billion.
Given all that emerging markets are facing, the IMF needs to establish a mechanism that can provide support at scale to countries facing external challenges that make them victims of problems beyond their control. When a country is suffering not primarily as the result of its own policy errors, it should not be required to accept IMF policy conditionality to receive support.
In New Delhi, where we hope the G-20 will become the G-21, some will simply admire the same problems that others are straining to solve. Some will bring sparks. Some might even fan the flames.
But the world doesn’t need any more arsonists. The world needs its firefighters at last to leave the station, which means leadership that recognises the danger we’re all facing.
Bono is the co-founder of ONE, a global campaign to end extreme poverty and preventable disease, and the lead singer of the rock band U2. Lawrence H. Summers, a professor at and past president of Harvard University, was US treasury secretary from 1999 to 2001 and an economic adviser to President Barack Obama