The World Is Blowing Its Best Shot at Fixing Climate Finance

The record-breaking floods that left one-third of Pakistan under water have also submerged its already sinking balance sheet. The government estimates it needs more than $40 billion to rebuild from the torrential, deadly rains that began in June and killed over 1,700 people. But while international aid has begun to trickle in, the global north has no plans to freeze Pakistan’s billions of dollars in debt obligations.

Pakistan owes $22 billion in foreign debt payments over the next year to the International Monetary Fund (IMF), China, the World Bank, and other public lenders. Pakistan has contributed less than 0.5 percent of historic emissions yet is among the top 10 countries most affected by climate change, according to Germanwatch’s Climate Risk Index, seen with the country’s severely worsened weather disasters like the recent floods. That’s led many citizens of the former British colony to feel echoes of historic injustice as the world’s top emitters—which are also their creditors—refuse to put debt cancellation on the agenda.

A growing chorus of Pakistani public figures, including influential former Senate chairman Mian Raza Rabbani, are demanding the world waive Pakistan’s debt as a form of direct climate reparations. The government, however, has been cautious. “We’re not asking about reparations,” Prime Minister Shehbaz Sharif recently said, pushing back on calls made by his own climate minister. Pakistan’s new finance minister, Ishaq Dar, has said Pakistan will try to avoid asking Paris Club lending nations for help.

But if Pakistan demands a restructuring or erasure of the debt it owes to wealthy emitters—such as the United States, European Union, and China—on the grounds of climate justice, many experts believe it could set a standard for other vulnerable global south countries seeking relief in an overheating, unequal world. Lower-income countries spend five times more paying debt than they do on climate mitigation and adaptation, the Jubilee Debt Campaign found last year, and extreme weather events are becoming more frequent and more severe.

“We’re in new territory,” said Ahmad Rafay Alam, an environmental lawyer and activist in Lahore, Pakistan. “There’s a 100-kilometer lake in a province in Punjab. The water has no place to drain. There’s no way any country can adapt out of that.”

Pakistan will lead the rotating G-77 coalition of developing countries at next month’s United Nations climate change conference (COP27) in Egypt, where it could insist on discussing loss and damage payments from climate change-caused destruction. “This is clearly loss and damage territory. This isn’t a debate,” Alam added. But the government still has “no clear vision” of what debt write-offs would look like, he said.

Creditors are mostly uninterested in the case for relief. The United States and China recently rolled over some debt, but U.S. Secretary of State Antony Blinken has told Pakistan it should seek further relief from Beijing, to whom it owes $14.6 billion. The IMF, which holds its annual meetings this week, announced a $1.17 billion bailout package in August, but it has ignored calls to unlock $650 billion in special drawing rights—international reserve assets—or agree to wider debt freezes. The same goes for the World Bank, whose leader made headlines last month by refusing to acknowledge that fossil fuels are warming the planet.

“We have tried everything,” said Malik Amin Aslam, who served as climate minister under former Prime Minister Imran Khan. Pakistan planted billions of trees, proposed initiatives like nature performance bonds, and tried working with the World Bank on lending based on climate policy, but of those efforts, “none of them has really matured,” he said. “The climate crisis has totally matured.”

Still, the United States has forcefully opposed accords establishing loss-and-damage mechanisms, and the European Union won’t back a climate damage fund at COP27. Aslam said as climate minister, Pakistan “always found a closed door” when discussing loss and damage with developed nations. In the wake of the floods, world leaders like U.N. Secretary-General António Guterres have made convincing pleas for help. “But that’s where it ends, unfortunately,” Aslam said. “What Pakistan needs is solutions, and it needs them urgently.”

“The response has been totally predictable,” said Patrick Bigger, research director at the Climate and Community Project and co-author of a report that advocates debt justice as a form of climate reparations. When Sri Lanka defaulted last year and Ecuador and Zambia before that, its creditors forced them to get IMF emergency funding and cut public spending, leaving them with slimmer budgets to alleviate poverty and combat droughts and flash floods. With Pakistan, they’re “following the same playbook,” Bigger said.

Before Pakistan’s floods, the idea of debt forgiveness for climate change has mostly been kicked around in left-wing circles, evolving from debt resistance by socialist governments in Cuba and Bolivia. That might be changing. “It’s interesting that reparations is [an idea] that’s resonating in Pakistan,” Bigger said, and the expanding discourse around them could add “growing momentum” to more maximalist approaches toward canceling debt.

Bigger argues there’s a real economic argument for wiping out debt—and there are existing models that are successful. The Heavily Indebted Poor Countries Initiative, which began in 1996, wiped out more than $70 billion in debt held by 37 developing countries, allowing them to spend more on poverty reduction. That program had “genuinely positive social and fiscal impacts” on participating countries, Bigger said, though it didn’t “alleviate the structural dimensions that create indebtedness in the first place”—and now, the climate crisis has saddled even more countries with massive adaptation costs.

There are other methods. The IMF could automatically suspend debt payments of countries that suffer climate disasters, Bigger said. Global lenders can attach climate-related conditions to debt relief, which prevents corrupt politicians from pilfering money meant for mitigation projects. And Paris Club lenders have used debt swaps to save failing economies, such as when lenders allowed struggling Latin American countries to convert their bank loans to bonds. “Maybe these sort-of sophisticated debt-swapping tools can be used,” Alam said. “I don’t think a global superpower like the United States needs a nuclear country to go destitute.”

Asking Pakistan to seek help from Beijing could also be dangerous. Washington’s ties to Islamabad have eroded in the past decade, leaving its reputation among Pakistanis in tatters. Playing hardball with debt repayment would only push Pakistan and other global south nations closer to China and Russia, harming Washington’s security goals and creating room for insurgent anti-West populists and Islamist movements.

Khan, Pakistan’s populist former prime minister, is deeply skeptical of global lending institutions and could leverage public anger to fuel his ongoing bid to retake power. And while China’s lending “has been problematic,” Bigger said, they were “much better actors” than most Western governments and private lenders in considering debt suspension.

At last week’s IMF meeting, global leaders blamed China for slowing relief in countries struggling to repay their debts, but as long as they’re forced to pay billions of dollars to the nations whose emissions caused their floods, many Pakistanis are not fond of either power. “I can shoot myself in the foot, or I can cut my pinky finger off,” Alam said.

And refusing to forgive the debt of Pakistan contributes directly to the suffering of millions of people, who face food and water shortages and a growing health emergency, said Ishak Soomro, a journalist and research associate who’s been on the ground in the affected areas of Pakistan’s Sindh province.

Many villages have no potable water, Soomro said, and more people are beginning to contract waterborne diseases. Millions of people are still living on roadsides, without shelter, as winter approaches. Schools are being taught out of tents. “We’re paying debt with dollars,” he said. “And we don’t have any dollars to rebuild our country.”