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New push for debt relief to help developing world fund climate action

Guest content
01 December 2023

The fight against the climate emergency is being hampered by a debt crisis that involves the world’s poorest countries paying more than 12 times as much to their creditors as they are spending on measures to tackle the impact of global heating, a campaign group has warned.

As the Cop28 meeting opened in the United Arab Emirates, Development Finance International (DFI) said a new round of comprehensive and deep debt cancellation was needed to free up much-needed investment in climate emergency adaptation.

A study of spending in 42 countries by DFI found debt service payments represented 32.7% of the budget in 2023 on average, while responding to the climate crisis stood at 2.5%.

Indonesia, the world’s fourth most populous country, plans to spend just 0.12% of its budget on adapting to the climate crisis in 2024 while payments to creditors are expected to be 29%, the report said. Most of the countries studied expect to spend less than 2% of their budgets on climate adaptation – and many would be investing less than 1%.

Matthew Martin, DFI’s executive director, said a major programme of debt cancellation on the scale of the initiatives of the late 1990s and early 2000s was needed. Debt service averaged 38% across 139 countries in the global south, rising to 57.5% for the low-income countries.

Martin said: “If the international community is serious about confronting the climate crisis, they need to get serious about comprehensive debt relief for a wide range of countries.

“If we bring countries’ debt service down to 15% of their revenues, as under the heavily indebted poor country initiative, we will have enough money to confront the climate crisis head-on.”

The report by DFI, a debt campaign group, said debt was already playing a key role in preventing countries from scaling up investments in tackling global heating.

The struggle to repay creditors might even be exacerbating the climate crisis, with countries forced to maximise exports to generate the foreign exchange required to meet the high cost of servicing debt. This has often meant continuing fossil fuel extraction that was profitable in the short term and even expanding fossil fuel projects, potentially delaying their own energy transitions in the process.

Attempts to reduce debt burdens are being conducted on a country-by-country basis under the Common Framework, a mechanism established by the G20 group of leading developed and developing countries at the start of the global pandemic in 2020. Only a handful of countries have so far received any debt relief, and DFI said that, even then, the Common Framework had failed to free up room for spending on climate adaptation.

In a separate move, more than 550 economists, development and climate experts, NGOs and activists, including leading economists Thomas Picketty and Jason Hickel, philosopher Olúfẹ́mi Táíwò and climate activist Vanessa Nakate, have signed an open letter calling for debt cancellation at Cop28.

The statement calls for the cancellation of the debts of lower-income countries “on the frontline of the climate emergency” and for rich countries to significantly increase levels of grant-based climate finance.

Further resources

Yanis Varoufakis, Thomas Picketty, Vanessa Nakate and leading experts call for debt cancellation at COP28 - Eurodad 

Original source: The Guardian

Image credit: Climate Debt Justice