In a move to support developing countries in the aftermath of climate-related disasters, the UK has unveiled new partnerships. Aimed at enhancing their economic resilience. The UK Export Finance (UKEF), the country’s export credit agency, will collaborate with twelve African and Caribbean nations. To enable them to defer debt repayments in the event of climate catastrophes like hurricanes or floods.
The announcement coincides with the participation of UK Minister for Development and Africa, Andrew Mitchell, at the Summit for a New Global Financing Pact in Paris. During the summit, Minister Mitchell will reveal that UKEF has initiated discussions with twelve partners in African and Caribbean Nations. To incorporate Climate Resilient Debt Clauses (CRDCs) into both new and existing loan agreements.
These clauses will empower governments to postpone their debt repayments temporarily. Allowing them to allocate resources towards disaster response and recovery efforts. The first CRDCs led by the UK are anticipated to be implemented in the coming months.
UK Aims to Become First Export Credit Agency to Offer CRDCs in Direct Lending
The UK had previously announced at COP27 its intention for UKEF to become the world’s first export credit agency to offer CRDCs in direct lending to low-income countries and small island developing states. UKEF possesses a £2 billion direct lending facility dedicated to financing overseas clean growth projects.
The Summit for a New Global Financing Pact, presided over by President Macron, aims to forge a fresh consensus for a more inclusive international financial system. Its objectives include addressing global poverty, and climate change, and reinvigorating progress toward achieving the United Nations’ Sustainable Development Goals. The UK is prioritizing the summit’s impact on low-income countries.
Minister Andrew Mitchell emphasized the difficult choices faced by developing nations when deciding between rebuilding communities and repaying debts following climate shocks. The announced partnerships with African and Caribbean nations signify a milestone in alleviating these pressures. Mitchell highlighted that Climate Resilient Debt Clauses offer relief to countries most severely affected by extreme weather events. And stressed the importance of pausing debt repayment to provide affected communities with the necessary breathing space for recovery.
Minister Mitchell Urges Lenders to Follow the UK’s Lead in Offering CRDCs
The UK is spearheading the call for international creditors to adopt CRDCs. Minister Mitchell, while chairing a side event on ‘Building a More Shock Resilient Financial System. It will urge lenders to follow the UK’s lead. Together with France and Barbados, he will issue a call to action for all bilateral, multilateral, and private lenders to offer CRDCs by the end of 2025, with early adopters providing CRDCs by COP28 in November. This initiative aims to enable vulnerable countries to allocate resources to post-disaster recovery efforts.
Barbados’ Prime Minister, Mia Amor Mottley, commended the UK’s support and leadership in developing these clauses. Asserting their potential to transform the resilience of the international financial system to better align with today’s world.
During the side event, the United States is expected to mention its preparations to offer CRDCs where feasible. While France will outline its integration of CRDCs into recent lending agreements. Additionally, under the guidance of the Inter-American Development Bank, nine Multilateral Development Banks (MDBs) will collaborate to explore the provision of CRDCs. Other partners are also anticipated to announce their participation in piloting CRDCs.
UKEF will publish its template clause, which is now offered as a standard feature in all loan agreements with eligible countries. This template aims to guide other official creditors in adopting similar provisions.
Tim Reid, CEO of UK Export Finance, hailed the release of the template Climate Resilient Debt Clause as a pivotal