A new report by ActionAid and Development Finance International (DFI) has recommended that Climate-vulnerable Countries spending about 10% of their national budgets to service external debt, should have their debts cancelled.
The report, titled Debt Fuels the Climate Crisis: How the Finance Flows, says climate-vulnerable countries are spending nearly 25 times more on debt repayments than on climate action.
Debt servicing absorbs 65% of their combined government revenue, limiting their ability to implement even basic climate plans.
It found that 93.5% of the most climate-vulnerable countries are either in debt distress or at significant risk of debt distress.
According to the report, cancelling the debts of these countries could fund their basic, unconditional national climate plans six times over, or cover their combined spending on climate, health, education and social protection twice over.
“For too long, the debt and climate crises have been treated separately. This research exposes how tightly they are connected and quantifies the devastating cost involved,” said Arthur Larok, Secretary-General of ActionAid International.
“Yet this is a crisis we can fix. Action on debt can unlock countries’ own resources on a scale that few other climate measures can match, protecting lives now while creating space for a safer and fairer future,” Larok added.
ActionAid and DFI have called for mandatory rules on debt renegotiation and restructuring whenever debt burdens become unsustainable.
The organisations have also called for a universal agreement to automatically suspend debt servicing for at least five years in countries affected by major climate-related disasters that require urgent financing.
They said loans considered to have been lent or borrowed irresponsibly, based on United Nations Conference on Trade and Development (UNCTAD) principles, should be prioritised for cancellation.
