By Mia Mottley of Barbados from Bridgetown, Barbados - World Leaders' Summit Opening Ceremony, Public Domain,

How “Pause Clauses” in World Bank Loans from an Idea to International Policy

Some of the most heavily indebted countries in the world are also the ones most vulnerable to climate-induced natural disasters. When a hurricane, cyclone, or massive drought hits a country, officials can be faced with the choice of either servicing their debts or paying for disaster recovery.

As the pace and scale of natural disasters increase due to climate change, some policy entrepreneurs have introduced the idea of including so-called “Pause Clauses” in loan agreements that would enable the country to suspend debt payments for a period of time as it recovers from a natural disaster. The best-known champion of this idea is the Prime Minister of Barbados, Mia Mottley. This was her signature proposal in a suite of reforms to international financing policies for climate-vulnerable countries known as the Bridgetown Initiative.

My guest today, Michael Sheldrick, tells the story of how Pause Clauses went from an idea on paper to a policy now widely implemented by the World Bank in his new book: From Ideas to Impact: A Playbook for Influencing and Implementing Change in a Divided World. Michael Sheldrick is a co-founder of Global Citizen and devotes a chapter of his book to the successful implementation of Pause Clauses. The book covers much more than Pause Clauses, but it is what we focus on in our conversation today because it is such a good example of policy entrepreneurship in the face of a seemingly intractable problem.

Our full conversation is freely available across podcast platforms here. The full transcript is immediately available below the fold for our paying supporters.

Transcript excerpt edited for clarity

Mark Leon Goldberg: So, we’re going to be focusing much of our conversation on one story you tell in your book about the Bridgetown Initiative and so-called Pause Clauses, but I happen to be catching you in Bridgetown. What are you doing there this time around?

Michael Sheldrick: Thanks, Mark. Real pleasure to be on the program. This is my third trip to Barbados. It is a special trip because I’ve also got my wife and six-month-old baby in town. We’ll be seeing the Prime Minister Mia Mottley tonight as we prepare to launch the third iteration of the Bridgetown Initiative. And on Saturday, I’m very privileged and humbled to be giving a talk about the book at the Bridgetown Museum and Historical Society. So, a number of things, but also just…it’s a fabulous place, lots of great food, so just trying to take a bit of a rest with the family as well.

Mark Leon Goldberg: It’s a working vacation! You’re meeting the Prime Minister, giving a book talk, and presumably hanging out on the beach, so all good. You mentioned the third iteration of the Bridgetown Initiative. Before we discuss the Bridgetown Initiative in general and pause clauses in particular, can I have you set the scene and explain the problem that the Bridgetown Initiative and pause clauses are intended to solve?

Michael Sheldrick: So, I first met Prime Minister Mia Mottley back in 2019. And that was the first time she came to Central Park during UN Leaders Week. And she addressed the Global Citizen Festival. And look, she’s not the first, and, unfortunately, she won’t be the last leader of a climate-vulnerable country to talk about the impacts of climate change on a country like hers. But part of the reason why I think she’s been so successful along with multiple partners in getting this issue on the global agenda is because it’s anchored in very actionable solutions.

But if I start first with the problem, — the problem is, is you’ve got many countries who weren’t responsible for the impacts of climate change, but are not only on the front lines of those impacts, whether that’s droughts, whether that’s flooding, whether that’s hurricane, whether that’s wildfires, everywhere from here in the Caribbean to Malawi.

But many of these countries are also amongst some of the most indebted nations in the world. I think Barbados, at one stage, was ranked third in terms of one of the most indebted countries in the world. If you are hit by one of these climate-induced natural disasters, you have to basically take out more debt in order to respond, and then you find yourself in this horrible debt cycle in which you’re unable to get out of, right? And so the whole point behind the Bridgetown Initiative is how do you change the financial system to free up financial resources so that countries such as Barbados, but also other climate vulnerable countries — say Malawi, Zambia, Kenya, many countries that are experiencing these impacts right now as we speak — how do you give them the resources to be able to not just transition to clean energy, but be able to withstand natural disasters and indeed thrive?

How do you have the money to be able to build that resilience? And just very practically, over a year ago when Cyclone Freddy, which was the longest living cyclone in the history of humanity, hit Malawi, and I think it sat on the country for over 48 hours, killed 1200 people, destroyed 2 million farms, put 5 million people on the brink of starvation. At that time, the country was paying more than a quarter of its annual revenue in repaying its debt. It was paying more in debt repayments than it was in terms of being able to build hospitals, provide education, provide meals, let alone rebuild after a natural disaster. And so the Bridgetown Initiative was like, how do you address these issues? And one practical example of that was this idea of a debt pause clause.

Now, a debt pause clause is basically the idea that if your country is hit by one of these natural disasters, automatically you get a two-year break on repaying any debt, right? You’re suspended, you’re not penalized for it, and you can put that money, instead of repaying loans, basically into your response and rebuilding.

Mark Leon Goldberg: Yeah, normally, if you stop repaying debts, you’d go into default, and that would hurt your credit rating, make borrowing more expensive in the future. But the idea here is that if your country is struck by a natural disaster, you can have a temporary reprieve from paying those debts back, and instead invest in rebuilding your country after the disaster.

Michael Sheldrick: Exactly. 100%. And so in the case of Barbados, if all of its loans were paused, if it faced hypothetically a hurricane, that would unlock the equivalent of $700 million, which is about 15% of the size of its economy. And that money is far greater than any amount of humanitarian aid. Now, the challenge is, when this idea was first floated, and I remember having a conversation with the Prime Minister Mia Mottley back in 2022 and when she first told me about it, of course, you go to Wall Street, you go to the commercial banks, and you’re laughed right out of it. They’re like, “This is never going to happen. This is fanciful.”

Mark Leon Goldberg: So, you have this very concrete ask — for pause clauses to be embedded in loan agreements with the World Bank. How do you go from having that idea to implementing that idea, to getting the political capital behind that idea? And you tell the story in your book how it really is the personality and the ingenuity of Mia Mottley that helped bring this idea to life. What made her so unique in this regard in advancing this idea?

Michael Sheldrick: So, I think there’s really six key insights or lessons that you could take from the Prime Minister leadership. And by the way, she’s always the first to say that Bridgetown is much more than Barbados. It’s really this coalition. But of course, she is the spirit of it, if you like. And I think there’s six key lessons to take away. The first is just being focused and having a very singular emphasis on your policy goal. And she was insistent that these pause clauses is something we’re going to focus on.

I remember being at the United Nations, I think it was the second meeting of the Bridgetown Initiative, the Secretary General was there, this was taking place in New York a little over a year ago. And of course, everyone has thrown out there their wish list. And you’d appreciate this — and I’ve been guilty of this in the past— anyone in our world who advocates for sustainable development goals, we tend to want a lot. And we tend to ask for everything at once. We present a wish list. And I remember her saying, “Simplicity gets us to the end. The minute we asked for everything at once, the game is up” And so, I think the first key takeaway was just the focus on this is something which we can win.

Mark Leon Goldberg: It’s not everything under the sun, but it’s one very digestible, understandable policy goal.

Michael Sheldrick: Exactly. And it’s not to say everything else isn’t important, but you have these moments in time where you’re going to say, “Okay, we’re going to really focus on this.” And this brings me to the second key element that was to master the art of timing. Because a little over a year ago at the World Bank, you had David Malpass, Ajay Banga’s predecessor, he was really hounded out the job because of the likes of Greta Thunberg and Al Gore.

Mark Leon Goldberg: Yeah, Al Gore ended his job! Malpass was a Trump appointee who it turned out was a climate denier. And the World Bank’s key focus ostensibly is climate resilience. And the two just didn’t mesh, so he left.

Michael Sheldrick: Exactly. So, of course, Ajay Banga comes in and he really fills this pressure to burnish his climate credentials, right? And of course, for the World Bank to do a lot it needs the support of its shareholders. If it’s going to spend more, it needs support of lending countries. The benefit of this idea of pause clauses is you’re not actually asking them to put in new money. You’re saying, in your existing loan agreements and in future loan agreements, can you introduce these natural disaster clauses? And by the way, this actually increases the likelihood that countries won’t default and they will actually be able to pay back, right?

It was an idea that you could describe as low hanging fruit. And if you’re looking for something to burnish your climate credentials, this could be a good idea. So, second point was just mastering the art of timing.

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