Published on 12:00 AM, November 19, 2021

Pandemic debt adds to challenge of funding world’s climate goals

Huge spending by governments kept the world economy afloat during the pandemic as officials mobilized a fiscal response not seen since World War Two to bolster household incomes and give businesses a fighting chance to survive the health crisis.

But the resulting nearly $300 trillion pile of debt held by governments, businesses and households will leave many countries with vulnerable finances and weigh on efforts to address urgent challenges such as climate change and ageing populations.

Even as rich and poor governments take stock of battered finances, inflation is pushing central banks toward higher interest rates and a tightening of monetary policy which, for the indebted, can only make the math less favorable.

"That means higher borrowing costs, higher interest burdens for the government and for the real sectors," said Emre Tiftik, direct of sustainability research for the Institute of International Finance (IIF), the global association of the financial industry.

"Over the medium term, the issue is all about finding the resources to fund climate goals and most are extremely behind on that," he added of the rapid decarbonization of the global economy needed to avert a climate crisis.

This month's Glasgow climate talks produced some new pledges by countries to reduce carbon emissions, but left many questions unanswered about how commitments will be financed and put into practice.

According to the IIF, global debt may just about have hit its peak from the pandemic and may fall slightly by year's end from the current $296 trillion. But easing the reliance on carbon-based fuels and mitigating climate damage is expected to require massive public and private investment - on order of $90 trillion by 2030, according to one World Bank estimate.

At this point there's no global plan for how to underwrite it, and governments' share of climate investments will have to compete with social, health and other spending priorities set to intensify because of demographic trends like ageing populations.