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Case Study: The Nexus of Climate Change, Sovereign Debt, and Climate Finance in Ghana

research-and-technical-papers

SLYCAN Trust

Key sectors of Ghana's economy and society are vulnerable to the impacts of climate change, which are already causing significant loss and damage (L&D). At the same time, the country faces macroeconomic challenges that include a rising fiscal deficit and unsustainable debt. This case study illustrates the complex nexus of climate change, sovereign debt, and the global financial architecture, posing unique challenges for climate-vulnerable developing countries. On one hand, there is a need to invest in climate change adaptation and long-term resilience-building without adding to the existing debt burden and economic challenges; on the other hand, new and additional finance is also required to respond to climate-induced L&D that could otherwise lead to emergency borrowing when costs exceed available domestic budgets. The impacts of climate change on Ghana can become drivers of new debt, and existing debt can slow down or prevent ambitious climate action and resilience-building. To prevent a vicious cycle, it is crucial to understand these dynamics at the national as well as global level. Non-debt-inducing finance as well as innovative financial instruments and frameworks are necessary to effectively address climate change in developing countries and ensure key principles such as equity, justice, and common but differentiated responsibilities (CBDR). As a climate-vulnerable developing country now exiting its 2022 selective debt default, Ghana provides a real-life case study on challenges, dimensions, and solution pathways.

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