The World Bank has announced a significant development in response to the campaign led by Barbados Prime Minister Mia Mottley. Countries affected by disasters will be allowed to temporarily suspend loan repayments to the international lender. World Bank President Ajay Banga will introduce this measure, along with incorporating catastrophe insurance into new loans, during a speech in Paris later this week.
In addition to the repayment pause, the World Bank will enable countries to redirect a portion of their funds to emergency response efforts during crises. The bank will also collaborate with the private sector to offer new insurance products for development projects. Banga will emphasize the importance of international cooperation and unity in tackling pandemics and climate change during a summit co-led by Mottley and French President Emmanuel Macron.
Mottley has spent the past year advocating for her Bridgetown Initiative, which aims to provide smaller, poorer countries with better lending terms from the World Bank and the IMF. She also seeks billions of dollars to combat climate change. Mottley stressed the significance of pause clauses in ensuring countries have the necessary “space to rebuild their nations” following a disaster. Although Barbados already has bonds with disaster or pandemic clauses, such provisions are not widely used globally.
The World Bank plans to initially offer its new Climate Resilient Debt Clauses to its most vulnerable borrowers, with the intention of expanding coverage in the future. Recognizing that not all countries can afford catastrophe insurance, the bank will collaborate with donors to make these products affordable for lower-income nations.
The Summit for a New Global Financial Pact in Paris, set to take place over the next two days, will see the participation of over 40 world leaders, including German Chancellor Olaf Scholz and the presidents of Gabon, Zambia, Sri Lanka, and Kenya. Ursula von der Leyen, President of the European Commission, Janet Yellen, US Treasury Secretary, and António Guterres, Secretary-General of the United Nations, are also expected to attend.
Macron views the summit as part of a broader diplomatic effort to demonstrate solidarity among wealthier western nations and rising emerging powers such as India, Brazil, and South Africa in the fight against climate change and sovereign debt reduction. Furthermore, France believes that engaging with the Global South could strengthen support for the alliance of the European Union, the United Kingdom, and the United States, particularly in countering Russia’s invasion of Ukraine.
The Élysée Palace has emphasized that the summit is not solely focused on monetary pledges. Instead, its goal is to establish a “road map” for reforming the international financial system, including multilateral development banks. Additionally, the summit will address various methods for generating finances to combat climate change, such as implementing levies or encouraging increased private sector investment. Macron has garnered support for a levy on greenhouse gas emissions in the shipping industry. Mottley cautioned that time is running out to take the necessary action, stressing the interconnectedness of climate and development.
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