The Asian Infrastructure Investment Bank is the headquarters of the Asian Infrastructure Investment Bank in Beijing. WANG PEIYAN The Asian Infrastructure Investment Bank is trying to finance the net-zero transition of developing economies - a crucial task considering the headwinds of climate change and rising debt levels of such economies, the chief economist said.
The issue of rising debt levels has caused short-term problems in some countries, such as Sri Lanka and Pakistan, but it should be noted that a long-term concern has also emerged, according to Erik Berglof, chief economist of the AIIB.
Berglof said in an exclusive interview with China Daily that having a high debt level could make developing economies less prepared for climate change, as well as the ability to invest in the net-zero transition and future economic growth.
Berglof said that we need to be more creative in addressing the very serious issue of high debt levels.
A way of financing net-zero transition despite rising debt levels could be by lending programs that incentivize developing economies' green efforts. Such lending programs, for instance, should allow them to borrow more cheaply if they contribute to carbon emissions reduction or biodiversity preservation, Berglof said.
Berglof said that the AIIB will continue to support developing economies in building the conditions for the net-zero transition and long-term economic growth. The development bank would help cushion the short-term blows from debt issues and challenging economic conditions.
The AIIB extended $2.9 billion, or 48 percent of the total financing approvals last year, to the field of climate finance.
In the Asian Infrastructure Finance 2022 report, the AIIB pointed out that emerging and developing economies are at risk of being left behind by the net-zero transition unless urgent action is taken to build public sector capacity in conjunction with the private sector.
Berglof said that accelerating the net-zero transition in developing economies is essential for avoiding a climate disaster, but that it will also help them deal with external shocks, such as global inflation.
Berglof said that all the things you need to do to promote growth are things that you need to do for the green transition, and that the reforms to make the public sector more efficient in green innovation will also drive innovation across the board.
Building an energy structure that is heavy with renewables will help developing economies reduce their dependence on energy imports. He said that this would mean greater economic resilience against the rising challenges of high global energy prices and monetary tightening in developed economies.
He said that when we look at supporting countries, we have to take into account the impact on our own credit rating. I think the AIIB is very well capitalized and we have the capacity. The bank had very few nonperforming loans as of the end of last year, according to its 2021 annual report, with ratings agencies Fitch, Moody's and S&P all reaffirmed the AIIB's AAA rating.
Berglof said that China's experience in pushing green development can inform other developing economies as the country has made its carbon reduction goals clear to stakeholders and got every government department involved in the pursuit of the goals.
China stands out among developing countries for its outstanding contribution to innovation in the green space, for helping bring down the costs of wind and solar power, and for taking part in keeping the international flow of green technologies open, Berglof said.