1.Countries are busy paying off debts rather than tackling the climate crisis
Unsustainable debt levels are undermining lower income countries’ ability to adapt to and mitigate the climate crisis because vital resources are diverted towards paying off debts.
Lower income countries, also known as the global South, have been facing increasingly unsustainable debt since the 2008 financial crisis, but economic shock resulting from the pandemic has exacerbated the situation, 52 countries are now in crisis.
In 2020 alone, countries in the global South spent $372 billion on servicing debt. Many countries can simply not afford to invest in mitigating and adapting to the impacts of the climate crisis.
2.Exploitation of natural resources to service debts
Many countries find themselves forced to exploit their natural resources as a means of generating the finance to repay their debt. For example, some global South governments, including Cote d’lvoire, Malaysia and Papua New Guinea, have turned to their forests as a source of raw material exports to help finance debt servicing.
In addition, many existing debt contracts are tied to fossil fuel projects that contribute to the climate crisis, such as China’s Belt and Road initiative which has funded 240 coal-powered plants through loans to Asian and African countries since it started in 2013.
3.Climate-extreme disasters are costly
Destruction and devastation from the human-made climate change is inevitable, yet with proper infrastructure in place, the effect could be mitigated. The UN estimates that climate-extreme events are happening at a rate of one per week, with the impacts of the climate crisis set to cost vulnerable countries up to $300 billion per year.
Many small island states are trapped in a vicious circle of climate-related disasters and debt. Every time they are hit by a hurricane, for example, they go further into debt to cover the costs of reconstruction. As an increasing proportion of their national income goes to debt payments, they are less able to invest in preparing for future disasters, or in rebuilding when they are hit.
Caribbean islands and other Small Island Developing States in particular are responsible for just 0.2% of CO2 emissions yet are being repeatedly devastated by the intensified hurricanes of a hotter world. Adding insult to injury, their creditors, who profit from the interest on their mounting debt, are governments and companies in the global North that caused the climate crisis and its destructive effects in the first place.
Without adequate climate finance for loss and damage, lower income country governments are being forced to take out new loans to address the impacts of climate-related disasters, often at high interest rates.
4.Climate finance means new debts
In line with their role in creating the climate crisis, rich countries had promised to provide $100 billion in climate finance yearly by 2020 to climate vulnerable countries. This is an arbitrary figure, which is only a small fraction of real needs.
But they have broken their promise and failed to deliver even this inadequate sum.
A significant amount of the finance that has come through is in the form of loans, contributing to the already unsustainable debt burden of many climate vulnerable countries. More than two thirds of the public climate finance delivered between 2013 and 2018 was delivered as loans.
Bottom line is that countries need funds to be able to address the climate crisis now, but many are trapped in repaying vast sums to their creditors every year.
Key global actors like the IMF and World Bank have acknowledged the link between debt and the climate crisis, but insufficient action is being taken by these institutions and decision makers like the G7 and G20 groupings of the world’s most powerful governments.
To address the climate crisis, urgent action is needed on the debt crisis in lower income countries. This includes both debt relief and adequate grant-based climate finance, in recognition of the climate debt owed to the global South by wealthy polluting nations for their role in the climate crisis. The latter has already been agreed in principle by all UN members in the principle of ‘common but differentiated responsibility’.
COP26 is the 2021 United Nations climate change conference.
For nearly three decades the UN has been bringing together almost every country on earth for global climate summits – called COPs – which stands for ‘Conference of the Parties’. This year will be the 26th annual summit – giving it the name COP26. With the UK as President, COP26 takes place in Glasgow.
The UK COP26 Presidency has recognised that debt needs to be a part of the conversation about the climate crisis, but so far the demands of many governments in the global South have been ignored.
So come join us online or at COP26 in Glasgow this year, in our campaign for urgent action. There can be no climate justice, without debt justice.
For more information
– Read our briefing which this blog is based on -> Debt and the Climate Crisis: A perfect storm.
– Read about the G20’s response to global South debt during the pandemic and what it really means -> The G20 is asleep at the wheel
– Read this article on debt and climate change in the magazine Progressive International
– Join our pre-COP26 event where we’ll be talking about this in more detail -> Cancel the debt for climate justice