The alarming rise in debt payments by the world’s 50 countries most vulnerable to the climate crisis. According to the Debt Justice charity, these countries are now paying a staggering 15.5% of their government revenues to external creditors, more than double the level seen before the COVID-19 pandemic and the highest in over three decades. The report from Debt Justice paints a dire picture of the financial constraints facing these nations as they grapple with the devastating effects of climate change. The surge in debt payments has severely hampered their ability to invest in critical climate adaptation and mitigation measures, further exacerbating the crisis.
The reasons for this new debt crisis are multifaceted. The temporary debt suspension scheme agreed upon at the start of the pandemic has now ended, and the suspended debts must be repaid. Additionally, the rise in global interest rates and the strengthening of the US dollar have increased the relative size of these external debt payments, which are predominantly denominated in dollars. One illustrative example is the case of drought-stricken Zambia. After three and a half years of negotiations, the Zambian government has recently struck a debt restructuring deal with some, but not all, of its private lenders. However, the terms of this deal are heavily skewed in favor of the creditors, with provisions for large increases in debt payments if the economy performs better than expected, but no equivalent clause to reduce payments in the event of a shock, such as a devastating drought. Heidi Chow, the executive director of Debt Justice, emphasizes the urgent need for “a rapid and effective debt relief scheme to cancel debts down to a sustainable level.” The charity calls on the UK government to take the lead in legislating to ensure that private lenders participate in international debt relief agreements. The upcoming 10-day conference in Bonn, which will focus on countries’ ability to finance climate action, including through climate finance and unsustainable debt levels. This conference presents a crucial opportunity for global leaders to address the intertwined issues of debt and climate change, and to develop a comprehensive and equitable solution. In conclusion, the escalating debt burdens faced by the world’s most climate-vulnerable nations have become a significant obstacle to their efforts to tackle the climate crisis. Urgent and comprehensive debt relief, coupled with increased climate finance from wealthy nations, is essential to empower these countries to build resilience, implement crucial adaptation measures, and transition to a low-carbon future. The international community must act swiftly and decisively to alleviate this crippling debt crisis and enable these nations to confront the existential threat of climate change.
