Financing Our Survival
Between now and the end of this decade, climate-related investments need to increase by orders of magnitude to keep the world on track toward achieving even more ambitious targets by mid-century. Fortunately, if done right, such investments could usher in an entirely new and better economy.
LONDON – With climate risks multiplying, the advanced economies’ pandemic-era policies have created a deeply uncertain future. The world now faces the triple challenge of stabilizing developed economies, accelerating progress toward net-zero emissions, and ensuring that emerging-market and frontier economies can access the capital they need to grow and protect their citizens. That calls for additional financial resources on a massive scale.
In responding to the COVID-19 crisis, policymakers in advanced economies introduced both massive debt-financed fiscal stimulus to shield businesses and households and ultra-loose monetary policies to maintain liquidity in the economy. While these measures succeeded in averting recession, corporate bankruptcies, and increased poverty, they also combined with supply-chain disruptions and Russia’s war in Ukraine to cause the highest inflation in over four decades. Central banks have since responded with repeated interest-rate hikes, contributing to tighter monetary conditions globally. Now, dozens of developing countries are facing debt problems, owing to the sharp and sudden increase in their borrowing costs.
Advanced and developing economies alike have demonstrated great resilience to this volatile economic environment, with some – including India and a few African economies – even maintaining robust growth. But risks are mounting. Over 60% of Africa’s low-income economies are in debt distress, Europe has been teetering on the brink of recession, US markets are volatile, and China’s recovery has faltered. Moreover, risks to financial stability have grown as banks and other financial institutions’ balance sheets have come under pressure from rising interest rates.
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