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Go Green with GBO: MENA countries struggle with climate finance disparities

From 2003 to 2021, 71% of foreign climate finance to MENA went to mitigation initiatives, mostly in energy, transportation, and infrastructure

Libya has Africa’s largest crude oil reserves and earned USD 27 billion in 2022 from oil and gas, which contribute to climate change. The money was not spent on early warning systems and catastrophe preparedness for Storm Daniel.

Debt trap and compounded vulnerabilities in MENA (Middle East and North Africa) climate finance

Despite the cascading environmental, economic, and social repercussions of climate change, most governments in the region face significant financial challenges in mitigation and adaptation.

The African Development Bank estimates that North Africa will need USD 280 billion by 2030 to mitigate and adapt to climate change, with a USD 10–30 billion yearly finance gap. MENA receives the least international climate finance. MENA received USD 16 billion in climate finance in 2019 and 2020, compared to USD 293 billion for East Asia and the Pacific Islands.

According to the 2024 Climate Fund Update, 17 of 21 nations in the region receive international climate finance. All countries in the region do not get climate finance equitably. Yemen, Libya, and Syria received substantially less climate finance than Morocco and Egypt, which received 48% and 28% of total approved climate finance between 2003 and 2023.

Most of this finance was loans or concessional loans. Overusing debt instruments worsens the region’s debt crisis.

In 2023, debt-to-GDP ratios in oil-importing economies were approaching 90%, approximately three times greater than in oil-exporting countries and 50% higher than the worldwide average of emerging market and developing economies.

Public debt climbed from 40% of GDP in 2010 to 80% in 2023 in Tunisia, 70% to 85% in Jordan, and 130% to 150% in Lebanon. This amount of debt risks squeezing out social spending on fundamental services like education and health due to structural economic vulnerabilities and limited government revenues.

In 2020, debt service was 221.8% of total revenue in Lebanon, Yemen, and Tunisia. In 2021, debt service was over one-third of government revenues. These nations also prioritise debt service before health and education. Yemen and Lebanon spend five times more on debt than health.

Climate vulnerabilities boost international debt costs and limit fiscal and monetary room for climate adaptation and resilience in MENA nations, compounding their precarious debt dilemma. All this ensures affluent countries won’t keep their climate promises.

Climate Finance Status

Developing and least developed nations, notably MENA, have cited tighter global finance and increased debt distress as barriers to low-carbon transition investment. They also stressed the need to rethink climate finance architecture to enable timely access to affordable development and climate finance.

The three stages of the Bridgetown Initiative (BI) for the Reform of the International Financial Architecture (IFA) support this long-standing desire. The plan proposes a USD 500 billion Global Climate Mitigation Trust seeded with IMF Special Drawing Rights.

The BI also recommends including a natural disasters clause in all credit instruments to allow climate-affected countries to temporarily suspend debt servicing. BI also urges multilateral development banks (MDBs) to provide concessionary credit to governments for climate adaptation.

The foregoing steps should make the global financial system more responsive, fairer, and inclusive. However, implementation remains difficult. This is particularly true given that the most recent BI cap suggests that too little has occurred since the package’s introduction in 2022, which requires implementation by 2025.

These findings corroborate the first Global Stocktake Report, the most comprehensive climate action evaluation to date, which recommends swiftly scaling up public money to support climate action in developing nations.

IDFC members pledged USD 288 billion for green finance in 2022, a 29% increase from 2021. However, the distribution of this financing indicates climate finance flows’ disparities and inequality. MENA received only $2.1 billion, 1% of the money, whereas East Asia and the Pacific received USD 195 billion.

Adaptation money rose 52% to $31.6 billion, although mitigation finance remained the majority at 87% of climate finance in 2022. From 2003 to 2021, 71% of foreign climate finance to MENA went to mitigation initiatives, mostly in energy, transportation, and infrastructure.

After decades of Global South activism and persuasion, governments agreed to create a Loss and Damage Fund at the 2022 COP27 in Egypt. Fund operations began at COP28 the following year. However, wealthier nations pledged USD 700 million, less than 0.2% of what developing nations need to address climate issues, estimated at USD 400 billion per year and anticipated to rise as the problem worsens.

Due to their historical carbon emissions, developed countries must lead the search for innovative funding mechanisms to fill the fund, based on UNFCCC principles of common but differentiated responsibilities and respective capacities.

Loss and damage funds should not be taken from humanitarian and development funding to ensure every dollar is counted and not doubled. This is significant since 93% of industrialised countries’ climate financing pledged between 2011 and 2020 was “taken straight from development aid” rather than “new and extra finance” for mitigation and adaptation.

Climate Justice: Unattainable Sans Fiscal Justice

Many call COP29 the “financial COP” because it can define climate finance flows that support low greenhouse gas emissions and climate-resilient development. For climate justice, climate money should be appropriate and balanced between adaptation and mitigation, prioritising adaptation for vulnerable recipients like the MENA.

Additionally, the global community needs to reevaluate climate finance strategies, which are currently predominately loans and debt-creating modalities and unfairly burden the Global South with climate crisis costs.

Parties should prioritise debt-for-climate and debt-for-adaptation swaps at COP29 as they become more popular and encourage creditors to participate in debt relief in exchange for environmental expenditures.

More efficient and equitable climate fiscal proposals abound. People don’t grasp their involvement in addressing the climate catastrophe, saying climate justice is impossible without monetary justice.

Only then can the international community reconfigure the climate finance system to line with a zero-carbon future, increasing resilience and assistance for the nations and communities that need it most, including MENA countries.

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