South Africa Considers Debt Relief for Climate Goals

South Africa is considering a new trade pitch and her politicians and even academics are in tune with this idea. This new line will enable is debt relief in exchange for progress toward global climate goals.

The debt-for-climate concept, which had been floated by International Monetary Fund Managing Director Kristalina Georgieva in April, has been picked up by South African Deputy Finance Minister David Masondo and the South African Communist Party, which is part of the country’s ruling coalition. The IMF plans to raise the idea at the COP26 climate conference in Glasgow in November.

Backers of the proposal hope creditors can be persuaded that climate change is a global problem so urgent that it’s worth forgiving debts in developing nations to help them pay for costly transitions to cleaner energy. While such initiatives have been tried before, they’ve never been realized on the scale that South Africa would be seeking.

The initiative would have multiple benefits for Africa’s biggest emitter of greenhouse gases. South Africa’s finances have been battered by its debt-ridden electricity company, Eskom Holdings SOC Ltd., which has required repeated bailouts and cash injections. The government is also seeking financing to switch Eskom from mostly coal-fired power to cleaner renewable energy.

The price tag for that transition would be astronomical though, costing as much as 400 billion rand ($28 billion), according to Masondo, the deputy finance minister. Under his proposal, 146 billion to 213 billion rand of sovereign debt would need to be forgiven or deferred, allowing the government to give Eskom an equity injection, help it secure green financing and close polluting power plants.

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