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A Challenging Nexus of Financial and Climate Woes

The Four Crises of Finance: Part Two

Looking Back Looking Forward | June 2023

In the years 2022-2023, the global landscape was shaped by a series of crises that posed significant challenges to the world economy. We have previously discussed the first three crises, including the crypto winter, the tech bank trauma, and the failure of Credit Suisse. In this blog post, we will delve into the fourth and most daunting crisis, which stands apart from the others due to its unique combination of financial and climate-related issues. This confluence of factors has created a complex situation, making the resolution of this crisis more difficult than any seen before.

The Nexus of Financial Struggles

The fourth crisis is primarily tied to a series of interest rate increases implemented by major central banks over the past several years. As interest rates rise, the costs of debt repayment escalate for many developing countries, particularly those already burdened with significant debt.

This financial strain is exacerbated by several factors, including the lingering impact of the COVID-19 pandemic on tourism, the Russia-Ukraine war affecting energy prices and agricultural products, and other commodity shocks. These factors have led to a dire situation in a substantial number of the world's poorest nations.

The Emergence of New Types of Creditors

Unlike previous crises, the current situation involves an increase in the involvement of new types of creditors. In addition to traditional developed country lenders, multilateral financial institutions, and private financial entities, two notable newcomers have emerged:

  1. China: China has become a major creditor country, extending loans to developing nations on a significant scale.

  2. Domestic Currency Bond Markets: Many countries now have substantial volumes of domestic bond debt, which has been sold to domestic investors.

This diverse array of creditors and lenders further complicates the resolution of the crisis, requiring differentiated approaches for each category of debt.

Climate Change: A Pervasive Factor

What sets the fourth crisis apart from previous emerging markets crises is the undeniable impact of climate change. The countries facing financial woes and debt struggles are also grappling with the adverse effects of climate change. Natural disasters and extreme weather events are worsening existing problems, exacerbating economic issues, and undermining governance and development efforts.

The Future Challenges

As we anticipate one of the hottest summers on record in the northern hemisphere, the interplay of financial difficulties and climate change consequences is likely to intensify. The severity and frequency of natural disasters are expected to increase, amplifying existing financial and debt problems. Consequently, resolving this fourth crisis will prove exceptionally challenging, and returning to stability and development may seem almost insurmountable.


The fourth crisis of 2022-2023 presents an intricate interweaving of financial struggles and climate change consequences, making it distinct from the previous three crises. With a diverse array of creditors and lenders, each requiring tailored solutions, the path to resolution is convoluted. Coupled with the intensifying impact of climate change on vulnerable nations, the challenges ahead are formidable. Addressing this crisis will demand a multi-faceted and collaborative approach from the global community to mitigate its devastating effects and foster sustainable development.

Thank you for joining us in this informative journey! Feel free to share your thoughts and stay tuned for our next episode.


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