EU’s lending arm to explore climate emergency repayment pause clauses

The EU’s lending arm, the European Investment Bank, is to join the likes of the World Bank in exploring new loan clauses that will allow developing world countries to suspend their repayments if they are struck by a natural disaster.

“The EIB is exploring ways to scale up climate finance,” it said in a statement on Friday at an international summit being held in Paris.

“These include longer-term and highly concessional loans, and the possibility of including a clause in loan contracts by which a country struck by a natural disaster would be able to pause its loan repayments.”

Modelled partly on the G20’s Debt Service Suspension Initiative (DSSI) used by almost 50 countries during the COVID pandemic, the “climate resilience” clauses were outlined by the head of the World Bank on Thursday.

The length of time that countries are expected to be able to suspend their repayments was not specified, but is expected to up to two years to give countries time to get back on their feet.

EIB Global, the arm of the bank that lends outside the EU, invests around 10 billion euros ($10.87 billion) a year. It is estimated that roughly half of that money goes to countries that could be eligble for the new clauses.

“We know that more climate disasters are coming,” Maria Shaw-Barragan, a Director of Lending the bank told Reuters. “So it makes sense for the MDBs, and bilateral lenders, to include these clauses in order to give countries some breathing space.”

($1 = 0.9198 euros)