The world’s poorest and most climate-vulnerable countries are spending billions of pounds more to repay debts than they receive in funding to fight climate change, new research shows.
The analysis, from the International Institute for Environment and Development (IIED) think tank, finds that in 2023 – the most recent year for which data was available – the 59 countries that represent the world’s least developed countries and small island developing states paid US $37 billion (£28bn) to service their debts, but received only $32 billion (£24bn) in climate finance.
The findings reflect a “vicious cycle”, where countries are being forced to borrow more money to cover costs for a climate crisis they have barely contributed towards. This often comes at the cost of the healthcare or education budget, and leads to debts further piling up.
“It’s grimly ironic that the countries most vulnerable to the climate crisis have done the least to cause it,” said Sejal Patel, IIED senior researcher.
“Their crushing debt burdens make it very difficult to deal with increasingly damaging and unpredictable extremes of weather.”
Gideon Rabinowitz, director of policy and advocacy at Bond, a UK network for organisations working in international development. said: “The UK and other high-income countries must urgently act to break this devastating vicious circle, by reversing their cuts to international aid, meet their climate finance commitments and support an ambitious and comprehensive programme of debt restructuring and relief.”
Debt burdens in low-income countries have soared in recent years. Developing countries now spend an average of 15 per cent of government revenue servicing foreign debts each year, compared to just 6.6 per cent in 2010.
Forty per cent of the world’s population lives in countries that spend more on international debt than health or education, while more and more countries are falling into “debt distress”: A situation where countries cannot fulfill their external financial obligations, and debt restructuring is necessary.
Debt pressures are particularly felt in Africa, where 20 low-income countries are in, or at risk, of debt distress, according to the International Monetary Fund (IMF).
Not only are debt costs spiralling, but the flow of climate finance, aimed at helping developing countries adapt to climate change and cover climate losses and damage, remain hugely underfunded.
Climate-related disasters have increased by 83 per cent in two decades, according to the UN, displacing 22 million people annually since 2008. It is estimated that trillions of dollars of funding will be needed each year to cover climate loss and damages, climate adaptation and decarbonisation efforts in the Global South.
But at the COP29 Climate Conference last year, rich countries only promised that they would provide $300 billion annually in climate finance, thereby placing a huge financial burden on countries that have contributed least to the climate crisis, and likely forcing them to rely on private financiers that will further drive up national debt.
Climate finance flows to least developed countries actually fell in the most recent year for which we have full data. Down from $22.1bn (£16.6bn) in 2022 to $15.7bn (£11.8) in 2023.
Countries at the forefront of the climate-debt crisis include the southern African nation of Malawi, which in 2024 saw debt reach 86.4 per cent of GDP, while public debt interest stands at 8.4 percent of GDP and 49.2 percent of domestic revenues (which encompasses taxes and other levies).
Charities report that health and education systems in the country are critically underfunded, with classrooms overcrowded and hospitals lacking key supplies. Meanwhile, climate disasters in the country, such as Cyclone Freddy in 2023, are estimated to be costing the country at least 1 per cent of GDP annually.
A key aspect of the crisis facing developing countries is that perceptions of risk mean they are forced to pay for debt at a far higher rate than countries in the Global North. But investors actually working in African countries say that risk perception is often far greater than actual risk.
Philippe Valahu, is the CEO of the Private Infrastructure Development Group, previously told The independent – having mobilised some $47.2bn in financing for infrastructure projects in sub-Saharan Africa and south and southeast Asia since 2002 – that he believes there is a “massive disconnect” between risk reality and perceived risk in Africa.
“We were set up to go to places that nobody goes to, and show the market at large that you can do business in those countries,” he said. “Inevitably we suffer some losses. But in fact over 23 years of existence, our losses and recoveries are no different to what you would expect to see in Europe or North America.”
The high cost of debt also limits countries’ abilities to borrow more money, which would help them develop.
In 2023, developing countries paid $25 billion more to their external creditors than they received in fresh lending, according to UN Trade and Development (UNCTAD), raising serious questions around the ability of the existing global financial system to help countries to develop.
NGOs and other pressure groups are campaigning for debt cancellation, particularly following on from aid cuts that are also devastating countries this year. Notably, the Catholic Church has a Jubilee 2025 debt cancellation campaign that was spearheaded by the Late Pope Francis, to cancel developing country debt.
With the next UN climate conference, COP30, just around the corner, and the IMF and World Bank set to hold their annual meetings in Washington DC from 13 to 18 October, pressure is set to ratchet up further in the coming weeks.
“We need urgent debt cancellation and a scale-up of climate finance,” said Catherine Pettengell, executive director at Climate Action Network UK. “Countries on the frontline are not getting the grant-based public finance they need to address the climate crisis and at the same time are being crushed by unfair and unsustainable debt.”
This article was produced as part of The Independent’s Rethinking Global Aid project
