In 2022, we wrote about emerging markets (“EM”) being a key piece in the climate puzzle. By this we meant that whilst developed markets have historically been the main contributor to climate change, EM markets will account for most of the increase in greenhouse gas emissions going forward. As such, the success or failure of EM will have a significant impact on the ability of the world to reach net-zero emissions by 2050, and therefore avoid the worst effects of climate change.
EM countries are feeling the sense of urgency when it comes to the worst effects of climate change. The devastating floods in Pakistan, and drought-induced famine in Uganda in 2022 are but a few of many likely climate-related natural disasters affecting EM countries, where the capacity to cope is limited. Unfortunately, it is precisely some of the most climate-vulnerable countries that are also facing the most acute debt distress – such as Sri Lanka and Zambia.
Here, whilst focusing on the restructuring of past debts is certainly necessary, it is solving only half of the problem. What these countries really require are new engines of economic growth to allow them to carry more (not less) debt, on a sustainable basis. On top of this, with the help of the international community, they need to invest in climate mitigation and adaptation projects to protect their populations from the adverse effects of climate change.