The World Bank will allow countries hit by disasters to pause repayments on loans to the multilateral lender, in a win for a campaign led by Barbados Prime Minister Mia Mottley.
World Bank president Ajay Banga will unveil measures, including the pause on repayments and embedding catastrophe insurance into new loans, in a speech in Paris on Thursday.
The lender will also allow countries to “quickly redirect” a portion of their funds to responding to an emergency when a crisis occurs, and will work with the private sector to offer new insurance products for development projects.
“Pandemics and climate change don’t respect lines on a map. And if we fail — or take too long to come together — we all lose,” Banga is set to say at a summit led by Mottley and France’s president, Emmanuel Macron, on how to ease the debt burden on developing countries.
Mottley has spent the past year pushing her Bridgetown Initiative, a drive to offer smaller, poorer countries better lending terms from the World Bank and the IMF. The Barbadian prime minister also wants billions of dollars to help tackle climate change.
Speaking to the Financial Times ahead of the summit, Mottley said so-called pause clauses were vital to ensuring countries had “space to be able to rebuild their countries” in the event of a disaster.
Barbados already has bonds that include disaster or pandemic clauses, but they are not widely used around the world. “What we need now is execution,” said Mottley.
The World Bank said it would at first offer its new Climate Resilient Debt Clauses to its “most vulnerable” borrowers, with a view to expanding the coverage. It also said that it recognised not every country would be able to afford catastrophe insurance, and so would work with donors to make the products affordable for lower income countries.
More than 40 world leaders are expected in Paris over the next two days for the Summit for a New Global Financial Pact. They include German chancellor Olaf Scholz and the presidents of Gabon, Zambia, Sri Lanka and Kenya.
European Commission president Ursula von der Leyen, US Treasury secretary Janet Yellen and UN secretary-general António Guterres are also due to attend.
Macron views the summit as part of a broader diplomatic push to show poorer countries and rising emerging powers such as India, Brazil and South Africa that richer western states will act in solidarity on the fight against climate change and sovereign debt reduction.
France also believes courting a grouping often referred to as the Global South could help bolster support for the alliance of the EU, the UK and the US in its fight against Russia’s full-scale invasion of Ukraine.
The Élysée has stressed the event is not a “pledging” summit where countries come with fresh money. Instead, by the end of the two days there will be a “road map” for how to reform the international financial system, including multilateral development bank.
The summit will also address new sources of finance for dealing with climate change, such as the introduction of levies or increasing private sector investment. Macron has also drummed up support for a levy on greenhouse gas emissions in the shipping industry.
Mottley warned that the world was “running out of time” to take the necessary action to ensure developing countries were prepared for global warming, arguing many were downing under debt. “We can’t separate climate from development,” she said.