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Climate Change challenging South Asia: A way forward to Adaptation and Mitigation

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Climate Change challenging South Asia: A way forward to Adaptation and Mitigation
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South Asian region is excessively wide-open to climate change effects; comprising higher temperatures, sea-level rise, inconsistent rainfall, amplified occurrence and harshness of extreme weather incidents, increased overflow and glacial melting. It is anticipated as the nastiest impacted regions by climate change and global warming because of geophysical environment in addition to the socio economic and demographic backwardness of population. There are millions of people bearing the burden of these catastrophes due to reliance upon climate sensitive segments such as forestry, fishing and agriculture for their daily needs. Biodiversity, human health, food security, energy, water, agricultural output as well as coastal arrangements are going to imperil causing increased migrations ultimately escalating pressures over main towns (Hans, 2020).

With the help of mainstreaming climatic resistance in to community development policies and taking along confirmed worthy development practices in to resilience approach conveyance as well as through integrated aptitude towards it can easily help to accomplish uneven methods to advancement and combating negative outcomes of climate change. It is an urgent necessity for domestic, regional and global level to mitigate and take adaptive measures for facing the harsh veracity of climatic change. South Asian states “as one bloc” should make constructive negotiations via international organizations. To achieve this, further regional considerations, cooperation and mutual work is required.

This article attempts to assess the over-all condition of South Asian climatic change and role of national and international organizations in this regard. It also suggests the adaptation based actions and other recommendations to bring improvement. For this, it has been divided into three sections with the explanation below;

Section-I Climate Change in South Asia; Particular Records and Evidences

It is expected that South Asian region will experience 2-6 degree of Celsius increase in the temperature by the ending 21st century era (Rabindranath, 2002). Heating up of roughly 0.21 Degree-Celsius every ten years is anticipated for coming twenty years (Jayant, 2007).

Past and future climatic aspects and alterations in temperature are shown here. (Figure 01 and Figure 02)

(Figure-01) Current/Past Köppen Climate Classification map for South Asia (1980-2016)

(Figure-02) Predicted Köppen Climate Classification map for South Asia (2071-2100)

According to the experts, South Asia is already suffering the wrath of climate change. There are influences on economic enactments of the South Asian states mainly and the livelihoods of thousands of folks of this area are affected and even in the near future this situation will be worst. South Asian region is projected as the most awful affected global regions because of climate change, and this is due to various reasons: like geo-climatic surroundings, excessive dependence on agriculture, socio-economic and demographic credentials etc. (Nazrul Islam, 2014).

Yohe et al., (2008) reflects that biodiversity, coastal ecosystem, food, human health, water resources, land deprivation etc. are deliberated as extremely vulnerable for this region on basis of climatic-change. Cyclones, famine, overflows, storms etc. are in the lives of millions of South Asians. On the other hand, the severity and intensity of these incidents in the recent times are increasing badly which is very worrisome. Scientists discourse that because of inclusive climate-change, incidences like these, will increase in coming era and take along a lot of despair for lots of folks. In this region, forthcoming years in several parts mainly in Maldives, islands or coastal areas of India and Sri Lanka, Southern coastal localities of Bangladesh are totally unreliable. Evidences illustrate that rise of 1 meter in the sea-level may cause an economic cost of 1259 million dollars in India only and this is almost equal to 0.37% of the total GNP (Jayashree, 2007). Total GDP loss since 2010 to future projection till 2100 has been shown here (Figure-03). Besides this economic loss, another worst consequence will be the incursion of ‘environmental refugees’ (term proposed by Lester Brown in 1976) in the overburdened hubs of South Asia, that is going to jeopardize the environmental, commercial, as well as societal balance in this region.

(Figure-03) Total Economic cost (GDP Loss) of Climate Change, South Asia

South Asian region is susceptible to various climate change hazards which are linked with its geography, population, economic infrastructure etc. These are;

Glacial Melting: The peaks of Himalayas are sustenance for almost one and half billions of population, living in flood-plains of several rivers flowing from it. Around 10 percent rivers of Himalaya emanate by water-melting of snow peaks, and is very indispensable for endurance during dry spells (ADB, 2009). But due to growing temperatures, the Himalayas’ ice mass is waning more speedily than universal average, and it will badly impact the Basins. Water scarcity during summer-months, that denotes approximately 61% of the yearly current, can impact this zone at the crucial time while people want water for the purpose of cultivation or hydro-power in addition to others. The change in snow melting and snow covering patterns will be affecting river flow in coming term (ADB, 2009). As per the studies of International Centre for Integrated Mountain Development, at hand are possibly twenty unsafe glacial water bodies in Nepal as well as twenty-five in Bhutan, which pretense hazard of upsurge overflows towards remote populations (Ives et al., 2010).

Land Erosion: Increase in floods, storms, surges, rainfall, rise in the sea-level besides anthropological activities are reasons of deteriorating destruction in South Asian zone. Over-grazed rangelands, coastal lands and stripped highlands got pretentious specifically. 26.5 percent of coast-line is disposed to corrosion in India, by around 450 hectares of mass land lost on yearly basis. Coastline of Sri Lanka is also matter to substantial erosion in specific areas, whereas the mountain state is susceptible to the recurrent landslides. Mountain communities in India, Bhutan and Nepal, are facing landslides regularly (Hans, 2020). Economies, habitats, agriculture and narrowing livelihood prospects, especially of the country side underprivileged are getting damaged. In South Asia, shoreline besides foothill territory erosion is going to worsen in years ahead because of extreme weather events occurrence due to climatic change.   

Rising Sea-Level: Stretched plus comprehensively settled coastlines of the region are extremely in danger of sea-level increase. Only in state of Bangladesh the level of sea is anticipated to upsurge 46 cm by the year 2050, affecting 10 to 15 percent of land mass and assessed 35 million people (GOB, 2007).  It has been also projected that sea-level will grow by 15-39 cm by 2050 in India, placing major cities including Kolkata, Kochi as well as Mumbai at menace. A great fraction of Coastal line of Sri Lanka stays under 1-meter overhead of the sea level, which can get sunken due to high waves, alongside its transportation substructure. Average altitude of Maldives’ landmasses is 1.50 meters above the level of sea, therefore survival is in threat which could be triggered by large scale migrations, having ripple impacts across the borders. Rise in the sea level gives path to saline water incursion, which possess risk for supply of drinking water, agriculture and aquatic lives. Above hundred million hectares got affected in Bangladesh, and whole of Maldives got wedged via salt-water meddling because of rising of sea-levels. It also came under forecast that Thatta and Badin-two historical cities in Sindh, Pakistan will get swallowed by the sea till 2050 because the sea is encroaching eighty acres of land per day. Sea-level rise has been shown covering 21st century over here. (Figure-04)

(Figure-04) Anticipated sea level changes by the end of 21st Century for Three Emission Scenarios based on Geophysical Fluid Dynamics Laboratory Model Results

Floods: Major zones of India, Bangladesh, Sri Lanka and Nepal are inclined to recurring floods because of low elevation, heavy monsoon rains and blocked natural drainage. Melting of glaciers and rising of seas levels with maximum chance of storm surges and flooding caused by climatic change can put state of Bangladesh at specific risk, because of three large river systems’ convergence, side by side assembling the rainwater of an area twelve times larger than the country. In Bangladesh for nine months, floods could last. Abrupt monsoon rains trapped South Asian region improvised to deal with the floods, which affected almost thirty million people of India, Bangladesh and Nepal in 2007. Approximately 1.1 million homes and 11 million people got damaged and displaced during 2010 floods in Pakistan (Hans, 2020). Recent flood in 2022 has also caused a huge loss to Pakistani nation.

Cyclones: Cyclone Amphan, a strongest storm is one of the recent examples which slammed into India and Bangladesh in May, 2020. It ended up with 3 million evacuees and damaged around 2 million homes there. People of India, Bangladesh and Sri Lanka were displaced at large scale. Such stormy weathers are recurrent shift triggers. Back in year 2009, 2.3 million Indians and nearly 1 million of Bangladeshi people were displaced by Cyclone Aila (Kugelman, 2020).

Section-II National, Regional and Global level Climate Actions in South Asian

National Level Efforts: Laws and policies are made for mitigation and adaptation against climate change by governments across South Asia. In 2005, after Indian Ocean Tsunami had affected millions of people, Maldives had developed a plan to relocate their population towards higher grounds and now they plan to build new islands altogether. But issues like corruption, not enough funds and poor infrastructure are great hurdles in the enforcement of these policies. Currently national initiatives range from basic to proper proactive measures like plantation, constructing concrete houses at coastal areas etc. In India, action plan promotes energy efficiency, renewable energy, water management and sustainable agriculture. For reducing migration risks elevated from climate issues, Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) guarantees to provide hundred days of paid-employment yearly to the wages manual worker. 10 billion US Dollars are given to 60 cities for developing infrastructure by Jawaharlal Nehru National Urban Renewal Mission, so that they can accommodate migrants from other parts. Moreover, the program Afat Vimo gives insurance for losses such as of earthquakes, cyclones, landslides or floods etc. In the meantime, there is a climate change policy in Pakistan for addressing migration due to climate severity, national food security policy for making agriculture productive and resilient to weather variations. Bangladesh is also initiating its plans under National Strategies on the Management of Disasters and Climate-Induced problems. Sustainable productions of fruits, forests as well as fish resources are being developed. The state is forerunner of this region due to putting efforts for integrating climate-change issue in to interagency structure of its government. Policies are made for establishing climatic change organization, governmental advisory body and planning commissions in every ministry.

States of this region emphasized sustainable farming progression and put efforts for reducing water-resources’ vulnerability besides aquatic threats for addressing adaptation community based approaches are integrated with institutional systemic mitigation and adaptation (MOE, 2011a, 2011b; MOEF, 2012a, 2012b; GOIRP, 2003; RGOB, n.d.; ROM, 2001; GON, 2011a; 2011b). Bangladesh set its objective to ensure food security from 2010 to 2015. Bhutan tried to promote adaptation in hydro power and agriculture sector by creating awareness and developing reliable capacity for facing climatic threats in future. India has enhanced infrastructure growth to ensure lesser impacts of weather disasters. Objective of Maldives’ government till 2020 was to assist adaptation in coastal settlement, tourism, health, water resources, food, agriculture, coral reef, fisheries as well as infrastructure development sectors. Nepal’s Action plan deals with food security related issues. Pakistan is aiming to guarantee foodstuff, water also energy-security for minimizing natural disasters’ impacts till 2030. Whereas Sri Lanka’s resilience to climate change programs focused on water resources, fisheries and agriculture segments during 2011-2016.

But despite of these policies and plans, actual implementation cannot be seen. Indian climate change action plan faced criticism due to lack of strategies for executing it. Institutions have failed to achieve their set agendas at a large scale. In Pakistan, situation is same as well. As their policy which aimed for an implementation frame work, actually did not implemented adaptation plans. Although capital has passed climate related laws but have not focused on enforcement. Provincial officials lacking technical or financial capacity faced challenges too. In addition to this negligence, Bangladesh even of it pioneer status, does not possess a national climate change policy and is facing many threats due to inefficient frame work.

Regional Level Efforts:  For combating environmental degradation concerns, regional cooperation got initiated during 1987 in 3rd South Asian Association for Regional Cooperation (SAARC) Conference. It was recognized there that natural disasters of this region are strongly linked with climatic change. For this purpose, “Regional Study on the Causes and Consequences of Natural Disasters and the Protection and Preservation of Environment-1991” as well as an additional reading over “Greenhouse Effect and its Impact on the Region-1992” was initiated. It recommended measures of sharing experiences, information and awareness regarding climate change, transferring technological skills etc. For revising those studies, in 1997 SAARC-Plan of Action for Environment got implemented. This made sure the formation of Regional-Centers of Excellence, like SAARC Meteorology Research Centre (SMRC) made in Dhaka-1995, SAARC Coastal Zone Management Centre (SCZMC) prepared in Male-2004, SAARC Disaster Management Centre (SDMC) built in New Delhi-2007 in addition to SAARC Forestry Center present in Bhutan lately. Centers provide reliable support to institutions for bringing the issues of climatic change or calamity risk-super vision in this region. SAARC also executed South Asia Disaster Knowledge Network from 2009 to 2012, financed by World Bank’s Global Facility for Disaster Reduction and Recovery. It shared information and awareness regarding risk minimization in region (Krampe & Swain, 2018).

As per SAARC, it is chief obligation of national governments to implement the Action Plan. Under regional cooperation, this Plan demands for effective mechanism which will cooperatively work with existing institutions according to the given guidelines and directions. Different Workshops like Science and Technology Solicitations in calamity menace Reduction Workshop-January, 2008-New Delhi as well as marine and coastal Risks in Goa-May 2008 highlighted the need of exchanging information and researches about climatic change adaptation among all the states in South Asia.

Climate Action Network-South Asia is also a civil society organization comprising more than 200 associations. It works to promote sustainable development and protects environment, by linking research, policies and work based on action for addressing adverse impacts of climatic disturbance. CANSA remain at forefront to represent Southern views at International Climate-negotiations.

Global Level Efforts: Various environmental conventions, agreements, treaties, legislations and protocols like the UN Conference on Human Environment-1972, Our Common Future-1987, the Earth Summit-1992, the Kyoto Protocol-1992, Johannesburg Summit-2002, Bali Conference-2007, Poznan Conference-2008, Hyogo Framework for Action-2005 to 2015, Paris Agreement-2015, Asia-Pacific climate change adaption information platform-2019 were joint efforts to combat environmental hazards and minimize impacts of climate change globally.

International Union for Conservation of Nature-1948, United Nations Environment Program-1972, Intergovernmental Panel on Climate Change-1988, Global Environment Facility-1991, Earth System Governance Project-2009, World Nature Organization-2010 are some of the international-level organizations working for protecting ecology and environment world-wide. These all are based on framework of resilience based policies, early warning systems, disaster threat lessening tools’ usage, techno-legal regime for development practices, susceptibility and hazard calculations, land-use preparation, and augmenting official and lawful volumes to be adopted by nations and communities to combat environmental degradation security challenge. Integration of information about disaster risk management and enforcement of that information for bridging the gap of dealing with risks during environmental alterations is stressed by such international-level actions. The United Nations Framework Convention on Climate Change (UNFCC), under Kyoto Protocol aims that developed countries will stabilize discharge of greenhouse-gases in addition they would be provided by solutions and tools for such maintenance via promoting Clean Development Mechanisms in the developing countries. Another major contribution of the Convention was Bali Action plan for enhancing adaptation in risk management domains.

Natural tragedies with the menacing influences over subsist and their means of support are increasing, which basically shifted the paradigm towards disaster-management of South Asian regions. This shift is to all-inclusive management of disasters reduction covering its entire phases from only one post disaster reprieve and reintegration. Disaster Risk Reduction (DRR) is the main focus comprising preparedness, prevention and mitigation measures. These programs are related to hydro-meteorological disasters like flood protection, alternative livelihood initiatives, droughts proofing, saline embankment or bio shields etc. are same like programs of climate change adaptation. Therefore, integration between both of these programs is necessary. It will augment developments by increasing relevancy with the contemporary challenges.

Even after such efforts, human population is facing severe security challenge of environmental degradation which is leading towards survival hardships. On the contrary of all action plans, there is no legal framework for climate induced displacement and even there is no consent based definition of environmental refugee. However, International Organization for Migration has made a framework product on dealing with migrations due to climate change after research has been done in Bangladesh, Sri Lanka and Nepal. Red Cross and World Bank have also offered scientific and technical assistance for catastrophe risk-management agendas in states here. Region’s Water-Initiative by World Bank gives analytical and technological help for forecasting floods in Ganges Basin. Climate adaptation and resilience for South Asia is another venture which provides funding for development. Bilateral donors, UK’s National Weather service and aid-agency also contributes in developing early-warning structures for climatic susceptible populations of the region.   

Section-III Solutions based on mitigating and adaptive methods to combat climatic change impacts

National, regional and international efforts are encouraging but these are not sufficient. There is much more the local and global community should do for helping reducing exposure of region to climate vulnerabilities. 

Here are some suggestions by which the severity of climate change impacts can be minimized:

1.Carbon emissions should be reduced and environmental friendly, sustainable technologies with less carbon-emission should be used. Due to emission of greenhouse gases via thermal plants, renewable energy sources are required to be used. All governments should make re-forestation their priority and ensure sustainable use of forests, natural resources and specially water.

2.More livelihood opportunities should be promoted in the non-agrarian domains. As it’s the major income source of a lot of South Asians and though a vulnerable segment. Therefore, farmers and other workers are susceptible to weather alterations. International organizations can donate for vocational trainings and skill enhancement programs for making millions of population able to work in other sectors like electronics, retails, telecommunications etc.

3.Provincial authorities should be empowered to tackle climate related disasters. In this region provincial governments lack requisite resources and expertise to combat impacts so they should be trained and funds should be provided to them. Decentralization is not enough when there is no implementation of policies at local or ground level. Analysts identified it very critical for the case of Pakistan, Nepal and Bangladesh (Parry et al., 2013, p. 33; Regmi & Bhandari, 2013; TAF, 2012). Sponsor trainings and awareness programs as well as check and balance by federal officials can solve this issue.

4.United States should assimilate climate change adaptation and mitigation assistance in to administration’s main Asia Policy and Indo-Pacific strategies. US officials consider South Asian region as fragment of Indo Pacific region therefore, aims for making strong ties with this region under the policy. Although cooperation based areas are less in number mainly based on counter-terrorism or maritime joint venture. US should allow its American Development Bank for investing in sectors like sustainable agriculture or disaster resilient structure for minimizing climate-change effects.

5.There is lack in financing and funding and this is a major reason for working on adaptation based measures against climate threats. Policies regarding it are hindering the situation as Pakistan can be taken as an example which primarily focused on external financing and not promoting internal one to deal such threats (GOP, 2012). There were bilateral donors helping like in 2009 almost eighteen donors assisted Nepal in climate change adaptation and same happened in Bangladesh, but implementing the plans into firm actions had been often seen here (CCNN, 2011; Alam et al., 2011). For overcoming these kinds of hurdles, internal as well as external parties should donate for the cause to protect whole region from adverse impacts of climatic severity.

6.Regional cooperation is a great need of this time to jointly combat the threats of climatic change. The region is rife with many tensions and strains among Pakistan and India, Afghanistan and Pakistan as well as India and other smaller neighboring states. Intra-regional trade is also less as compared to other regions and non-existence of commercial collaboration further deprives it from solidification and mutual path towards prosperity. In addition to this, the main regional body SAARC is somehow paralyzed in taking actions because of Pakistan-India stress full diplomatic relations. Diplomats from neutral states and other external actors should therefore initiate Track-II diplomacy and arrange multi-lateral forums for helping to build consent based joint plan, by which climate change threats can be addressed. Programs like Dhaka Declaration on Climate Change and SAARC Food Security Reserve should be implemented which had languished for years. These can promote regional cooperation and capacity building as well as can reserve food grains for communities exposed to climate threats during disasters.

7.Furthermore, governments, NGOs and other civil organizations of the region should play their role by disseminating mass awareness regarding climatic change, making people encourage to go for diverse means of livelihoods and different patterns of consumption with the help of media, education or social movements, make them motivated for applying adaptation and mitigation based strategies to combat climatic change impacts.

CONCLUSION

South Asian climate related security-risks demand for governments to step up and international communities to support the cause and save the region. Now is the time to better understand future climate anticipations’ implication for ongoing expositions. Though the efforts of integrating stakeholders and diverse structures of institutes in climatic change scenario are being made and many international level treaties, agreements or mega projects are planned but outcome is despondent. There is a lot more to be done. Responsibility lies on major powers-global policemen to compensate developing states by initiating development grants, projects implementations and infrastructure betterment.

COVID-19 crisis is a lesson and window of opportunity for all to re-form national and international politics according to the liberal stand point of cooperation. In climate change context, optimistic attitude is very much needed as radical change is always possible. Re-alignment of traditionalists with re-invention of liberal sustainable development plan as well as constructing innovative ideas, discourses and identities will definitely enable International relations for research in coming many decades of national and international level politics.

This research article confirms that paradigm shift is compulsory for confronting non-traditional security threats like climate change. Focusing environment as a referent object is way too necessary now for ensuring over all security and stability of this region as well as whole world. Globalized world and trans-national boundaries ask for more cooperative relations not only to promote trade or production but to fight mutually against every threat. Therefore, beside states, international community has to play its part for combating the contrary influences of climate variation. Individual level awareness and efforts are significant as well. In the beginning, it is only one step which takes all to mutual destiny, so making aware a lay man, who is more vulnerable to climatic hazards means a lot to the over-all contribution of adaptation and mitigation on climate-change in this region of South Asia.

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In Times of Conflict, Spare a Thought for the Non-Gulf Economies

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By James Swanston

Positive news for non-GCC Arab economies has been in short supply of late. The Gaza conflict, missile attacks in the Red Seawar in Ukraine and last month’s tit-for-tat missile strikes between Israel and Iran have weighed on sentiment, undermined limited confidence and cut into growth.

But some positives have emerged. Headline inflation rates have slowed across much of North Africa and the Levant, implying lower interest rates, a return to real growth and more stable exchange rates. March data show inflation at an annualised rate of just 0.9 percent in Morocco and 1.6 percent in Jordan. Tunisia’s inflation rate has also come down, although it is still running at over 7 percent year on year.

Egypt’s inflation rate jumped earlier this year as the government implemented price hikes to some goods and services – notably fuel. In February, the effect of the devaluation in the pound to the level of the parallel market affected prices. But March’s reading eased to an albeit still high 33 percent year on year.

 

Elsewhere, Lebanon’s inflation slowed to 70 percent year on year in March, the first time it has been in double – rather than triple – digits since early 2020 due to de-facto dollarisation and lower demand for imports. That said, inflation in these economies is vulnerable to increases in the prices of global foods and energy (such as oil) due to their being net importers. If supply chain disruptions persist, it could result in central banks keeping monetary policy tighter with consequences for growth and employment. And in Morocco’s case, it could undermine the Bank Al-Maghrib’s intention to widen the dirham’s trading band and formally adopt an inflation-targeting monetary framework.

The strikes by Iran and Israel undoubtedly marked a dangerous escalation in what up to now had been a proxy war. Thankfully, policymakers across the globe have for the moment worked to de-escalate the situation. Outside the countries directly involved, the most significant spillover has been the disruptions to shipping in the Red Sea and Suez Canal. Many of the major global shipping companies have diverted ships away from the Red Sea due to attacks by Houthi rebels and have instead opted to go around the Cape of Good Hope.

The latest data shows that total freight traffic through the Suez Canal and Bab el-Mandeb Strait is down 60-75 percent since the onset of the hostilities in Gaza in early October. Almost all countries have seen fewer port calls. This could create fresh shortages of some goods imports, hamper production, and put upward pressure on prices.

For Egypt, inflation aside, the shipping disruptions have proven to be a major economic headache. Receipts from the Suez Canal were worth around 2.5 percent of GDP in 2023 – and that was before canal fees were hiked by 15 percent this January. Canal receipts are a major source of hard currency for Egypt and officials have said that revenues are down 40-50 percent compared to levels in early October.

The conflict is also weighing on the crucial tourism sector. Tourism accounts for 5-10 percent of GDP in the economies of North Africa and the Levant and is a critical source of hard currency inflows.

Jordan, where figures are the timeliest, show that tourist arrivals were down over 10 percent year on year between November and January. News of Iranian drones and missiles flying over Jordan imply that these numbers will, unfortunately, have fallen further.

In the case of Egypt, foreign currency revenues – from tourism and the Suez canal – represent more than 6 percent of GDP and are vulnerable. This played a large part in the decision to de-value the pound and hike interest rates aggressively in March.

The saving grace is that the conflict has galvanised geopolitical support for these economies. For Egypt, the aforementioned policy shift was accompanied by an enhanced $8bn IMF deal and, while not strictly bilateral support, the bumper Ras el-Hekma deal seems to have been accelerated as the pressure on the Egyptian economy ratcheted up. This is providing much needed foreign currency. At the same time, Jordan recently renewed its financing arrangement with the IMF for $1.2bn over four years.

Tunisia, however, is an exception. President Saied’s anti-IMF rhetoric and reluctance to pass reforms, such as harsh fiscal consolidation, in an election year, mean that the country’s staff-level agreement for an IMF deal is likely to remain in limbo. If strains on Tunisia’s foreign receipts are stretched, and the central bank and government continue with unorthodox policies of deficit financing, there is a risk that Tunisia’s economic crisis will become messier more quickly in the next year – particularly large sovereign debt repayments are due in early 2025.

James Swanston is Middle East and North Africa economist at London-based Capital Economics


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Debt Dependency in Africa: the Drivers

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In mid-April Ghana’s efforts to restructure its sovereign debt came to nothing, increasing the risk that it couldn’t keep up with its repayments. This is a familiar story for many African countries. Twenty of them are in serious debt trouble. Carlos Lopes argues that there are three factors driving this state of affairs: the rules of the international banking system; lenders’ focus on poverty reduction rather than development needs; and unfair treatment by rating agencies.

The debt situation in many African countries has escalated again to a critical juncture. Twenty are in, or at risk of, debt distress. Three pivotal elements significantly contribute to this. Firstly, the rules governing the international banking system favour developed countries and work against the interests of African countries.

Secondly, multilateral financial institutions such as the International Monetary Fund (IMF) and the World Bank focus on poverty alleviation. This is commendable. But it doesn’t address the liquidity crisis countries face. Many don’t have the necessary readily available funds in their coffers to cover urgent development priorities due to their dependency on volatile commodity exports. As a result governments turn to raising sovereign debt under conditions that are among the most unfavourable on the planet. This perpetuates a debt dependency cycle rather than fostering sustainable economic growth.

Thirdly, there’s the significant influence of biased credit rating agencies. These unfairly penalise African countries. In turn, this impedes their ability to attract investment on favourable terms. The convergence of these three factors underscores the imperative to implement effective strategies aimed at mitigating the overwhelming debt burden afflicting African nations. These strategies must address the immediate financial challenges facing countries. They must also lay the groundwork for long-term economic sustainability and equitable development across the continent.

By tackling these issues head-on, a financial environment can be created that fosters growth, empowers local economies, and ensures that African countries have access to the resources they need to thrive.

Rules of the banking game

The Bank for International Settlements is often called the “central bank for central banks”. It sets the regulations and standards for the global banking system. But its rules disproportionately favour developed economies, leading to unfavourable conditions for African countries. For instance, capital adequacy requirements – the amount of money banks must hold in relation to their assets – and other prudential rules may be disproportionately stringent for African markets. This limits lending to stimulate economic growth in less attractive economies.

The bank’s policies also often overlook developing nations’ unique challenges. Following the 2008/2009 financial crisis, the bank introduced a new, tougher set of regulations. Their complexity and stringent requirements have inadvertently accelerated the withdrawal of international banks from Africa.

They have also made it increasingly difficult for global banks to operate profitably in African markets. As a result, many have chosen to scale back their operations, or exit. The withdrawals have reduced competition within the banking sector, limited access to credit for businesses and individuals, and hampered efforts to promote economic growth and development.

The limitations of the new regulations highlight the need for a more nuanced approach to banking regulation. The adverse effects could be mitigated by simplifying the regulations. For example, requirements could be tailored to the specific needs of African economies, and supporting local banks.

Focus on poverty alleviation

Multilateral financial institutions like the IMF and the World Bank play a crucial role in providing financial assistance to many countries on the continent. But their emphasis on poverty alleviation and, more recently, climate finance often overlooks the urgent spending needs. Additionally, the liquidity squeeze facing countries further limits their capacity to prioritise essential expenditure. Wealthy nations enjoy the luxury of lenient regulatory frameworks and ample fiscal space. For their part African countries are left to fend for themselves in an environment rife with predatory lending practices and exploitative economic policies. Among these are sweetheart tax deals which often involving tax exemptions. In addition, illicit financial practices by multinational corporations drain countries of their limited resources. Research by The ONE Campaign found that financial transfers to developing nations plummeted from a peak of US$225 billion in 2014 to just US$51 billion in 2022, the latest year for which data is available. These flows are projected to diminish further.

Alarmingly, the ONE Campaign report stated that more than one in five emerging markets and developing countries allocated more resources to debt servicing in 2022 than they received in external financing. Aid donors have been touting record global aid figures. But nearly one in five aid dollars was directed towards domestic spending hosting migrants or supporting Ukraine. Aid to Africa has stagnated.

This leaves African countries looking for any opportunities to access liquidity, which makes them a prey of debt scavengers. As noted by Columbia University professor José Antonio Ocampo, the Paris Club, the oldest debt-restructuring mechanism still in operation, exclusively addresses sovereign debt owed to its 22 members, primarily OECD countries.

With these limited attempts to address a significant structural problem of pervasive indebtedness it is unfair to stigmatise Africa as if it contracted debt because of its performance or bad management.

Rating agencies

Rating agencies wield significant influence in the global financial landscape. They shape investor sentiment and determine countries’ borrowing costs. However, their assessments are often marked by bias. This is particularly evident in their treatment of African countries. African nations argue that without bias, they should receive higher ratings and lower borrowing costs. In turn this would mean brighter economic prospects as there is a positive correlation between financial development and credit ratings. However, the subjective nature of the assessment system inflates the perception of investment risk in Africa beyond the actual risk of default. This increases the cost of credit.

Some countries have contested ratings. For instance, Zambia rejected Moody’s downgrade in 2015, Namibia appealed a junk status downgrade in 2017 and Tanzania appealed against inaccurate ratings in 2018. Ghana contested ratings by Fitch and Moody’s in 2022, arguing they did not reflect the country’s risk factors. Nigeria and Kenya rejected Moody’s rating downgrades. Both cited a lack of understanding of the domestic environment by rating agencies. They asserted that their fiscal situations and debt were less dire than estimated by Moody’s.

Recent arguments from the Economic Commission for Africa and the African Peer Review Mechanism highlight deteriorating sovereign credit ratings in Africa despite some posting growth patterns above 5% for sustained periods. Their joint report identifies challenges during the rating agencies’ reviews. This includes errors in publishing ratings and commentaries and the location of analysts outside Africa to circumvent regulatory compliance, fees and tax obligations.

A recent UNDP report illuminates a staggering reality: African nations would gain a significant boost in sovereign credit financing if credit ratings were grounded more in economic fundamentals and less in subjective assessments. According to the report’s findings, African countries could access an additional US$31 billion in new financing while saving nearly US$14.2 billion in total interest costs.

These figures might seem modest in the eyes of large investment firms. But they hold immense significance for African economies. If credit ratings accurately reflected economic realities, the 13 countries studied could unlock an extra US$45 billion in funds. This is equivalent to the entire net official development assistance received by sub-Saharan Africa in 2021. These figures underscore the urgent need to address the systemic biases plaguing credit rating assessments in Africa.

Next steps

Debates about Africa’s debt crisis often lean towards solutions centered on compensation. These advocate for increased official development aid, more generous climate finance measures, or the reduction of borrowing costs through hybrid arrangements backed by international financial systems. These measures may offer temporary relief. But they need to be more genuine solutions in light of the three structural challenges facing African countries.

Carlos Lopes,a Professor at the Nelson Mandela School of Public Governance, University of Cape Town,  is  the Chair of the African Climate Foundation’s Advisory Council as well as its Chairman of the Board. He is also a board member of the World Resources Institute and Climate Works Foundation.

Courtesy: The Conversation


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IsDB President Advocates for Cultivating Entrepreneurial Leaders

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By Hafiz M. Ahmed

The 18th Global Islamic Finance Forum recently served as a prominent platform for discussions on advancing Islamic finance and fostering leadership in the entrepreneurial sector. During this notable event, the President of the Islamic Development Bank (IsDB) emphasized the critical need for nurturing entrepreneurial leaders to propel the growth of the Islamic finance industry. This blog post explores the insights shared by the IsDB President, the implications for the future of Islamic finance, and the strategies proposed to develop the next generation of leaders.

Key Highlights from the Forum

The Global Islamic Finance Forum, held annually, brings together experts, policymakers, and stakeholders from across the world to deliberate on the challenges and opportunities within Islamic finance. This year’s focus on entrepreneurial leadership underscores the sector’s evolution and its growing impact on global economies.

The IsDB President’s Vision

  1. Empowering Entrepreneurs. The IsDB President outlined a vision where empowerment and support for entrepreneurs are paramount. He highlighted the role of Islamic finance in providing ethical and sustainable funding options that align with the principles of Sharia law, offering a robust alternative to conventional financing methods.
  2. Education and Training. A significant part of the address was dedicated to the importance of education and specialized training in Islamic finance. The President called for enhanced educational programs that not only focus on the technical aspects of Islamic finance but also foster entrepreneurial thinking and leadership skills among students.
  3. Innovation in Financial Products. Recognizing the rapidly changing financial landscape, the call for innovation in designing financial products that meet the unique needs of modern businesses was emphasized. These innovations should aim to enhance accessibility, affordability, and suitability for diverse entrepreneurial ventures.
  4. Collaborative Efforts. The IsDB President advocated for increased collaboration between Islamic financial institutions and educational entities to create ecosystems that support and nurture future leaders. This collaboration is essential for developing a holistic environment where aspiring entrepreneurs can thrive.
  5. Supportive Policies: Lastly, the need for supportive governmental policies that facilitate the growth of Islamic finance was discussed. Such policies should encourage entrepreneurship, particularly in regions where access to financial services is limited.

Implications for the Future

The advocacy for entrepreneurial leaders in Islamic finance is timely, as the industry sees exponential growth and wider acceptance as a viable financial system globally. Cultivating leaders who not only understand the intricacies of Islamic finance but who are also capable of innovative thinking and ethical leadership is crucial for the sustainability and expansion of this sector.

Steps Forward

  • Integrating Leadership into Curriculum: Educational institutions offering courses in Islamic finance should integrate leadership training into their curricula.
  • Mentorship Programs: Establishing mentorship programs that connect experienced professionals in Islamic finance with emerging leaders.
  • Fostering Start-up Ecosystems: Creating supportive environments for start-ups within the Islamic financial framework can encourage practical learning and innovation.

Conclusion

The call by the IsDB President to nurture entrepreneurial leaders in Islamic finance is a step toward ensuring the sector’s robust growth and its contribution to global economic stability. By focusing on education, innovation, and supportive policies, the Islamic finance industry can look forward to a generation of leaders who are well-equipped to navigate the complexities of the modern financial world and who are committed to ethical and sustainable business practices. This vision not only enhances the profile of Islamic finance but also contributes to a more inclusive and balanced global financial ecosystem.


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