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The ‘nature’ of an economic crisis

08 Jun 2022

  • Experts highlight impact on biodiversity and need to link environmental conservation with economic recovery 
BY Sumudu Chamara Although the prevailing economic crisis is often seen as an issue that should and has to be resolved with direct monetary assistance and money-making economic activities, like several countries have done, Sri Lanka can widen its efforts to include environment-related efforts in its economic recovery process. It can not only improve environmental conservation, but also improve the country’s economic situation to some extent. The importance of environment-related projects and financial assistance was stressed during a discussion titled “Whither biodiversity in a deepening economic crisis?” organised by the Institute of Environmental Professionals Sri Lanka (IEPSL), where the impacts of the economic crisis on Sri Lanka’s environment, especially on biodiversity, were also discussed. It was joined by University of Colombo Senior Professor in Zoology and Environment Science Prof. Devaka Weerakoon, Centre for a Smart Future Co-Founder Anushka Wijesinha, and SLYCAN Trust Executive Director Vositha Wijenayake. Economic crisis’ impacts on the environment According to Prof. Weerakoon, even though the discussion on the economic crisis is almost entirely based on Sri Lanka’s present and future economic situation, it is crucial to discuss the impacts of the economic crisis on Sri Lanka’s environment, as those impacts are most likely to worsen in the near future. He noted that what Sri Lanka is facing is not only an economic crisis, and that what the country should, therefore, be concerned about more is food security issues that are looming because of the organic fertiliser decision taken in last April, of which the results are showing now.  He added: “In the last Maha season, food production went down by as much as 50%, and we still have not received fertiliser this year. This season just started, and it is likely to fail. Also, some farmers are not even engaging in farming activities, which means that in the next Maha season, they will not have enough money even if fertiliser was available.” He raised concerns that this is precisely what various experts had warned of when talking about the challenges to be faced within the next six to 10 months. However, according to him, increased necessities, such as food and energy, are likely to cause more issues than what Sri Lanka has projected.   “In that backdrop, it will have an impact on biodiversity as well. If we look at the direct impact, this situation will lead to poverty, and poverty will lead to heavy dependency on natural resources, which is a very well-proven linkage. During the Covid-19 pandemic, we saw leopard deaths going up. If we look at what was happening, people were not killing them, but were setting up more snares to catch other animals. When the leopards got caught in these snares, the issue became more evident, and that is how we began to understand the gravity of the problem. It is important to look at what is in store for us in the future compared to the Covid-19 situation. There will be heavy dependence on resources, and more hunting, more illegal logging will happen. Managing biodiversity is not going to be a priority.  “At the same time, in order to solve the energy crisis, we will try to develop renewable energy resources in the country very rapidly. Renewable energy is useful, and that is the way we should be going. But, if we approached this in an unplanned manner, the impacts are going to be very heavy. If we do not do the necessary investigations and take the necessary mitigating measures to reduce the impacts, and if we try to fast track these processes, we would probably be able to generate energy but at a very high cost,” he explained, adding that Sri Lanka should also understand that, even though the country is talking about the need to develop agricultural activities as a response to the impending famine, it will involve the clearing of more forests or natural areas for cultivation. Prof. Weerakoon said: “Two years ago, we had an issue with what is referred to as residual forests. These are very important forests, but the Government released them from its custody for development. This is the sort of pervasive approach that might be taken in the future, which does not look very good for biodiversity.” Adding that Sri Lanka should be reminded of how biodiversity could also provide a way out of the economic crisis, he said that there is an ongoing dialogue about “debt-for-nature” swaps (a financial mechanism that allows portions of a country’s foreign debt to be written off, in exchange for commitments to invest in biodiversity conservation and environmental policy measures), which can help the country offset some of its debts in lieu of conserving biodiversity. Environment related efforts to get financial help As Prof. Weerakoon stated, there are several ways that Sri Lanka can initiate environment-related projects which can help Sri Lanka financially. However, looking at the experiences of other countries that have implemented such projects and assessing Sri Lanka’s situation carefully is necessary. In this regard, Wijesinha said: “We should be concerned that following the immediate economic stabilisation and recovery efforts, we will likely follow a sort of ‘slash and burn’ type of economic growth with a ruthless focus on trying to make up for the lost time in terms of Sri Lanka’s economic growth. That type of economic growth will damage the environment, reverse years and years of hard work in the conservation space, and focus on trying to build back rather than building forward with a focus on nature.” He stressed that Sri Lanka has an opportunity to avoid going down that route, and that the country has the option of using newer instruments, plenty of which exist today. He explained: “The starting point to tap into some of these new financial instruments is to recognise that nature has value. I do not think that we have that, whether at a macro level, from a national accounts point of view, or at an enterprise level. In terms of a national accounts level, we need to go beyond the gross domestic product (GDP), and start exploring newer and more holistic ways of accounting that consider nature an actual capital.  “There is already some work being done by the United Nations (UN) Statistics Office globally, called the System of Environmental Economic Accounting (SEEA). They follow similar structures to the system of national accounts most countries use for their regular national accounts. There are also examples of how countries are linking economic recovery and stimulus measures to the improvement of biodiversity. For example, during the Covid-19-related economic fallout, some countries crafted their stimulus packages to link short-term economic recovery to long-term environmental goals including the protection of biodiversity.” Wijesinha cautioned that there will not be the fiscal space in the next two to three years for Sri Lanka to work on environmental conservation, the way it has been done before, because budgets for Ministers and agencies that have a role in conservation will be affected by austerity measures.  With regard to how Sri Lanka should integrate environment-related efforts to help the economy, Wijesinha said: “The first point is the need to value nature better, both at the national macro level as well as at the enterprise level. Secondly, I do not think that we can wait for the economy to get better and then have resources freed up, and then do good things for the environment. We know that the resources are going to be constrained. We are going to have to find ways to link the two (economy and environment), such as through linking economic recovery measures or stimulus measures to environmental goals.  “There are two key sovereign instruments that would be of interest to Sri Lanka. One is debt-for-nature swaps, and the other is nature performance bonds (NPB). Debt-for-nature swaps are typically used to restructure existing higher-cost debts or lower-cost debts, for some kind of conservation target. Debt-for-nature swaps are probably a little more established, because of its relative simplicity. I think that one of the most recent examples is the Seychelles. In 2016, a $ 20 million debt of the Seychelles was restructured in exchange for marine conservation and climate pledges.  “NPBs are relatively new in parlance, and it was put forward by the Finance for Biodiversity Initiative. Under this, some nature-based key performance indicators are met through positive incentivising; but these have to be very rigorously monitored, reported, and verified. In fact, NPBs allow for both the restructuring of existing bonds as well as issuing new debts.” Wijesinha however noted that availing of the said facilities is not an easy task, and that Sri Lanka will have to look into a number of environmental and economic factors.  “Anyone who thinks that these are easy things, merely because money is available and instruments are well known, should understand that it is not easy. We have to work with professionals, because if there is one thing that the current crisis has taught us, it is that Sri Lanka has a poor track record of managing sovereign debt. We take loans like an adult, but we have reckless-teenager-like behaviours when it comes to spending that money. In addition, we do not have financial discipline. While these instruments exist globally, when it comes to Sri Lanka tapping into them, there is a big question as to whether we have the discipline and the institutional framework to do what is needed in order to stick to those commitments.” Moreover, adding that one of the most concerning aspects of obtaining such facilities is the nature of some of the conditions that Sri Lanka will have to agree to, he said: “Most of the time, these sustainability-linked bonds have clauses where, if we do not meet conservation goals or resource-management targets, the interest rate for the instrument gets kicked up to the rate of a commercial financial assistance. We do not get that discounted rate after that point.” He emphasised: “These instruments exist, countries have done it, and it is an option available to Sri Lanka. But, our track record for any form of sovereign debt has been poor, and therefore, we need to improve the discipline aspect. However, that is not our usual financial discipline that we have to focus on. It is also an environmental conservation discipline.” Environment and community According to what was discussed during the discussion, these efforts, however, have to be implemented with a focus on how communities can benefit from and contribute to them. It was also noted that it would be beneficial both environmentally and economically. In this regard, Wijenayake pointed out the importance of multi-actor partnerships for environmental projects and policies in order to ensure that communities benefit from those projects, and the importance of identifying how communities are integrated into these processes. She further noted that it is important to ensure that these projects benefit communities in reality, not only on paper. She added: “Most of the time, there are different elements of such projects, such as risk transfer options, and whether they are linked to climate resilience and biodiversity conservation. There is not a lot of understanding about this. Our options could play a role in ensuring that conservation is linked to financial instruments as well. Even when it comes to matters such as the human-elephant conflict, there are countries that address conservation and also the human element in a way that is financially viable.” She opined that looking at innovative options when it comes to addressing environmental issues would be the way forward. However, according to her, one obstacle is the gap between how communities understand these processes and projects, and how those implementing the projects understand them, which she said must be addressed. Sri Lanka is rich in natural resources, and it has created a greater responsibility to conserve and protect environmental resources. However, as experts mentioned, as the economic crisis worsens, Sri Lanka’s ability to fund environment conservation projects will gradually wane, while people’s dependence on natural resources will rise. In this context, there is a need to protect both the environment and the economy, and perhaps it is time to look at environment and climate-related financial assistance.


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