In the News
Should low income countries be offered 'debt for climate swaps'?
21st June 2023
A complicated issue to unpick but the head of the IMF, Kristina Georgieva has called for so-called 'debt for climate swaps' to be offered to developing economies to allow them to overcome the challenges posed by climate change. It all seems so worthwhile. But is it?
Undoubtedly climate change is challenging but isn't there an issue of asymmetric information here - and a risk of moral hazard as a result. Won't developing economies have less incentive to manage their debt and might it encourage risky behaviours in the knowledge that they might get bailed out.
An unusual, if valid, real world example of moral hazard operating in a market.
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