Western Hemisphere > Belize

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Mr. Serhan Cevik
Global warming is the most significant threat to ecosystems and people’s health and living standards, especially in small island states in the Caribbean and elsewhere. This paper contributes to the debate by analyzing different options to scale up climate change mitigation and adaptation. In particular, the empirical analysis indicates that increasing energy efficiency and reducing the use of fossil fuel in electricity generation could lead to a significant reduction in carbon emissions, while investing in physical and financial resilience would yield long-run benefits. From a risk-reward perspective, the advantages of reducing the risks associated with climate change and the health benefits from higher environmental quality clearly outweigh the potential cost of climate change mitigation and adaptation in the short run. The additional revenue generated by environmental taxes could be used to compensate the most vulnerable households, building a multilayered safety net, and strengthening structural resilience.
Mr. Marcos d Chamon, Erik Klok, Mr. Vimal V Thakoor, and Mr. Jeromin Zettelmeyer

This paper compares debt-for-climate swaps—partial debt relief operations conditional on debtor commitments to undertake climate-related investments—to alternative fiscal support instruments. Because some of the benefits of debt-climate swaps accrue to non-participating creditors, they are generally less efficient forms of support than conditional grants and/or broad debt restructuring (which could be linked to climate adaptation when the latter significantly reduces credit risk). This said, debt-climate swaps could be superior to conditional grants when they can be structured in a way that makes the climate commitment de facto senior to debt service; and they could be superior to comprehensive debt restructuring in narrow settings, when the latter is expected to produce large economic dislocations and the debt-climate swap is expected to materially reduce debt risks (and achieve debt sustainability). Furthermore, debt-climate swaps could be useful to expand fiscal space for climate investment when grants or more comprehensive debt relief are just not on the table. The paper explores policy actions that would benefit both debt-climate swaps and other forms of climate finance, including developing markets for debt instruments linked to climate performance.

Mr. Marcos d Chamon, Erik Klok, Mr. Vimal V Thakoor, and Mr. Jeromin Zettelmeyer
Mr. Marcos d Chamon, Erik Klok, Mr. Vimal V Thakoor, and Mr. Jeromin Zettelmeyer
This paper compares debt-for-climate swaps—partial debt relief operations conditional on debtor commitments to undertake climate-related investments—to alternative fiscal support instruments. Because some of the benefits of debt-climate swaps accrue to non-participating creditors, they are generally less efficient forms of support than conditional grants and/or broad debt restructuring (which could be linked to climate adaptation when the latter significantly reduces credit risk). This said, debt-climate swaps could be superior to conditional grants when they can be structured in a way that makes the climate commitment de facto senior to debt service; and they could be superior to comprehensive debt restructuring in narrow settings, when the latter is expected to produce large economic dislocations and the debt-climate swap is expected to materially reduce debt risks (and achieve debt sustainability). Furthermore, debt-climate swaps could be useful to expand fiscal space for climate investment when grants or more comprehensive debt relief are just not on the table. The paper explores policy actions that would benefit both debt-climate swaps and other forms of climate finance, including developing markets for debt instruments linked to climate performance.
International Monetary Fund. Western Hemisphere Dept.

1. The COVID-19 pandemic had a severe impact on Belize in 2020. It led to a 71 percent drop in tourist arrivals and a 16.7 percent decline in real GDP in 2020. The resulting fall in revenues and rise in pandemic-related expenditure widened the fiscal deficit to 10.3 percent of GDP in FY2020 and increased public debt to 133 percent of GDP in 2020, a level that was assessed as unsustainable during the 2021 Article IV consultation.1 To address this situation, the new government, in office since November 2020, presented a Medium-Term Recovery Plan (MTRP) that seeks to lower public debt to 85 percent of GDP in 2025 and 70 percent in 2030 through the implementation of fiscal consolidation, growth-enhancing structural reforms, and debt restructuring.2