Caribbean in ‘debt-climate trap’

A leading regional economist, who once led the Central Bank of Trinidad and Tobago, is warning that the Caribbean is in a debt-climate trap that it needs to break out of using structural reforms.

Jwala Rambarran, who is now a senior policy advisor with the Barbados-based Caribbean Policy Development Centre (CPDC), is offering some solutions.

He is proposing that Barbados and other countries use the CPDC’s updated Caribbean Emancipation 2030 Framework, which “proposes an integrated reform agenda that links systemic debt justice, vulnerability-based climate finance, and a just economic transformation. Emancipation in the 21st century must entail fiscal sovereignty, climate justice, and structural resilience”.

Specific suggestions include that CARICOM “should establish a regional debt-climate negotiation platform to coordinate talks with the International Monetary Fund, the World Bank, private creditors, and [United Nations climate conference] processes”.

The economist is also advising international financial institutions to “formally integrate the Multidimensional Vulnerability Index into concessional eligibility criteria”.

New policy brief

Rambarran made the recommendations in an analysis titled Caribbean Emancipation 2030: Breaking The Debt-Climate Trap In Caribbean SIDS, which is included in a new policy brief published by the Faculty of Social Sciences, University of the West Indies, Cave Hill Campus.

His other recommendations were: Creditors should embed automatic climate-shock clauses that suspend debt service across all Caribbean debt instruments.

High-Income countries should fully capitalise the Fund for Responding to Loss and Damage with grants based on their historical share of emissions.

Caribbean Governments should legislate fiscal transparency rules that direct debtrelief savings towards building climate resilience.

His key points included that Caribbean SIDS are trapped in a reinforcing debt-climate cycle – climate shocks drive borrowing, rising debt limits resilience, and limited resilience magnifies future losses.

The former central bank governor noted that “despite contributing less than one per cent of global emissions, the region faces disproportionate climate burdens. For example, a single hurricane can undo a decade of fiscal reform.

The economist asserted that “the global financial architecture is misaligned: debt frameworks ignore climate risk and adaptation is being financed through debt”.

Rambarran said: “The Caribbean debt-climate trap is systemic, not episodic. Climate shocks, sovereign debt dynamics, and global financial rules interact in reinforcing cycles that undermine sovereignty and resilience. Incremental reform will not suffice. “Integrated reform, linking debt justice, vulnerability-based finance, and structural transformation, is both economically necessary and politically feasible.

“Emancipation in the twenty-first century must entail fiscal autonomy, climate justice, and democratic resilience. Caribbean Emancipation 2030 offers a justice-based reform strategy grounded in empirical evidence and lived Caribbean experience.”

Rambarran argued that Caribbean SIDS are facing a deepening structural crisis at the intersection of sovereign debt and climate vulnerability, pointing out that “successive global shocks between 2022 and 2025, including pandemic-recovery pressures, geopolitical instability, energy and food price spikes, and the sharpest global interest rate tightening cycle in four decades, have exacerbated long-standing regional vulnerabilities”.

“By 2025, public debt ratios across Caribbean economies remained well above the conventional 60 per cent of GDP debt sustainability. Five Caribbean SIDS recorded debt levels exceeding 75 per cent of GDP, placing them among the most indebted SIDS worldwide, while six other countries reported debt ratios between 60 and 75 per cent,” he noted. “Severe hurricanes generate large, recurrent fiscal shocks by destroying infrastructure and productive capacity, and raise public debt by approximately 18 per cent above pre-storm trends within three years.”

Magnifies future losses

He warned: “This convergence is not temporary. It reflects a structural debt-climate trap in which climate shocks drive borrowing, which in turn reduces fiscal space for resilience, and limited resilience magnifies future losses.

“Under current global rules, even fiscally disciplined Caribbean states remain one major hurricane away from renewed debt distress.”

Rambarran identified several challenges facing the Caribbean within the “reinforcing system in which sovereign debt and climate vulnerability interact in predictable cycles”.

Among them were debt sustainability is climate contingent; climate shocks are macroeconomic shocks; adaptation is being financed through debt; insurance provides liquidity, not reconstruction; and the global debt architecture ignores climate vulnerability.

On this last point, he said: “The G20 Common Framework has failed to deliver timely debt relief to vulnerable states. Caribbean debt restructurings – Barbados [in] 2018 and Jamaica [in] 2010 [and] 2013, required deep domestic adjustment before relief. The architecture treats debt distress as episodic liquidity stress rather than structural vulnerability.”

He argued that the case for integrated debtclimate reform rests on four empirical realities. These included that climate shocks systematically raise debt ratios; adaptation financing gaps persist; global interest rate shocks amplify climate risk; and reform precedents demonstrate feasibility.

“Integrated reform that links debt architecture, vulnerability-based finance, and structural transformation can help to break the Caribbean’s debt–climate trap,” Rambarran advised.

“For decision-makers, the choice is therefore not between reform and the status quo. It is between systemic redesign now and recurring fiscal crisis after each major climate event.” (SC)

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