Those events often become humanitarian crises; they’re also expensive and getting more so. The average cost of capital for a select group of 58 climate-vulnerable countries is 10.5% according to report published in April by the Boston University Global Development Policy Center. That compares to a sovereign bond yield of 4.3% over the past decade for a Bloomberg Barclays emerging markets index.
In the weeks that followed, as work began to repair the damage from the worst flood locals had ever seen, Thobani and his colleagues were forced to face up to a new reality. The damaged harvest had blown a hole in household budgets and the repair work quickly drained savings. Ordinarily the farmers, who were uninsured, could tap the local agricultural bank, but the surge in global interest rates means loans now come with crippling monthly payments.
Alvario Lario, president of the United Nations International Fund for Agricultural Development, said he’s seen farmers driven out of business due to extreme weather in Ivory Coast, Madagascar, Kenya and Indonesia."The depth or the intensity of these shocks is very clearly much more acute than what it was five or ten years ago. That’s the reality,” he said.
As natural disasters intensify and become more frequent, investors are increasing the interest rate they charge vulnerable countries, adding to the debt burden, according to the Boston University report. The elevated risk premium could trap countries into a"vicious cycle” of higher debt costs and a decreased capacity to invest in climate resilience, the researchers including Luma Ramos and Rebecca Ray wrote.
The growing frequency of natural disasters has spurred governments in climate-vulnerable countries to step up calls for increased aid from rich nations that have historically contributed the bulk of emissions.