LONDON, June 23 (Reuters) - The world’s most climate-vulnerable nations and a set of major development banks launched a new initiative on Tuesday aimed at unlocking cheaper and more predictable funding for countries increasingly facing climate shocks and rising debt costs.
The "Vulnerability to Viability (V2V) Compact", agreed by the Climate Vulnerable Forum (CVF) and its "V20" finance ministers, brings together 74 economies and more than a dozen multilateral lenders from the World Bank to the Vienna-based OPEC Fund.
It seeks to address the financing gaps left by years of global crises, more frequent and extreme droughts, hurricanes or floods and what some say is a mispricing of sovereign risk that pushes up poorer countries' borrowing costs.
The Compact focuses on affordable and concessional finance, mobilising private capital and developing "shock-responsive" financing, such as loans with payment suspension clauses, that help governments maintain essential services during crises.
An outline of the initiative said it would prioritise investment in "water, education and health systems" sectors it said were "the bedrock of human security".
Barbados Prime Minister Mia Mottley — a long-time driver of the initiative — said it would address an "injustice" that debt borrowed for sanitation systems, schools or hospitals usually has to be paid back within 10 to 20 years despite serving populations for generations.
Further details, including potential financing targets and mechanisms, are set to be developed in a white paper that the group expects to lay out at the World Bank and IMF's annual meetings in Thailand in mid-October.
The countries and development banks involved added that they were committed to using concessional resources "strategically and catalytically" and continue coordination.
(Reporting by Marc Jones; Editing by Andrew Cawthorne)
