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Prime Minister Justin Trudeau told Caribbean leaders Wednesday that Canada could allow countries to suspend debt repayments in the event they’re hit by a natural disaster.
In doing so, Canada joins with other international lenders like the World Bank, which has agreed to insert climate clauses in its new loan agreements with countries.
Trudeau announced the new debt clause at the Canada-CARICOM summit in Ottawa.
It’s the first such summit held in Canada and outside the Caribbean by the regional economic and political bloc.
“Canada will now offer climate debt resilient clauses (CDRC’s) in all sovereign lending,” Trudeau told the summit during a session on climate change.
The Bridgetown Initiative, a set of recommendations on debt relief and climate change promoted by Prime Minister Mia Mottley of Barbados, called for such climate clauses. CARICOM has adopted the initiative.
The Bridgetown Initiative calls for an overhaul of an international financial system that dates back to the Second World War. Its proponents say that system no longer serves countries whose economies could be wiped out by a hurricane, forcing them to deal with both disaster relief and high-interest debt repayments at the same time.
“We have maintained that the one-size-fits-all prescription and the … rules that are imposed on us are not of our own making [and] cannot continue,” Mottley said.
Like the debt clauses the World Bank offered in June, Canada’s promise of pauses on repayment due to natural disasters would apply only to new loans.
Mottley pointed out that the debt pause promised by the World Bank applies only to the principal of the loan, not to the interest portion.
As a result, Mottley said, the World Bank relief clause offers little help to countries in crisis.
“Instead of having debt pause clauses for all existing debt for vulnerable countries, we are now being told that it is likely to be future debt,” she said.
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