lGrenada is the first country in the world to activate the so-called “hurricane” clause in August, which suspends debt payments for a few months. The next installments in November 2024 and May 2025 will thus be postponed, amounting to a total of 12.5 million dollars (11.3 million euros). This small Caribbean country, 150 kilometres north of the Venezuelan coast, was devastated by a powerful cyclone in early July. With wind gusts of 240 km/h, Hurricane Beryl destroyed fishing boats, cut off drinking water supplies, destroyed power lines and killed one resident. Never before has such a powerful hurricane formed so early in the year in this region. In just a few hours, the equivalent of a third of Grenada’s annual GDP was destroyed. As temperatures and sea levels rise, these tropical cyclones will become more numerous and more powerful, with devastating economic consequences and the risk of endless debt.
Visiting Granada, Simon Stiell, head of the UN Climate Change, expressed his concern about the fate of these «States trapped in a vicious cycle of debt, borrowing to rebuild until a new climate catastrophe occurs, are forced to borrow again and again to rebuild their damaged infrastructure and divert their resources from education, health and development»He himself is from the tiny island of Carriacou, Grenada, where 95% of homes were destroyed. The International Monetary Fund has calculated that one in ten disasters in small countries causes destruction equivalent to at least 30% of their annual GDP, compared with just one in a hundred in larger countries.
While many developing countries are victims of global warming and are simultaneously suffocated by the weight of their debt, this “hurricane” clause should be made more widespread. It automatically suspends the repayment of a bond or loan, thus avoiding lengthy and costly restructuring negotiations. In doing so, it also frees up the resources needed to rebuild the economy when the country needs them most. This clause does not erase any debt: it simply gives the country a little leeway – and time – to be able to repay it, while distributing the risk more fairly between the borrower and the investor.
Transfer of risk
The State of Grenada made a request to its creditors in 2015, in the midst of renegotiating its debt, because it could no longer pay its debt, having been unable to recover from the passage of Tropical Cyclone Ivan in 2004, which had cost it the equivalent of twice its annual GDP. Only Barbados has also adopted it. Other countries would do well to take an interest in it. The World Bank now offers some of its creditor countries a two-year payment suspension in the event of a natural disaster.
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