Protecting against sovereign debt defaults under growing climate impacts: role for parametric insurance

In this working paper, researchers propose creating a global fund to pool climate and other debt relief funds from the World Bank and International Monetary Fund (IMF) to cover insurance premiums for low-income countries. The climate crisis is pushing least developed countries into over-indebtedness, amplifying their disparity with developed countries.

Fundamental changes are needed to re-engineer, regulate, and equalise global debt and growth. Parametric insurance for sovereign debt can be one of the sustainable options for resolving the debt crisis. Insurance could cover debt repayment on behalf of the country during the period of climate crisis, helping them to focus their budget on relief and recovery, with the provision of a global fund to cover the insurance premiums.