Debt payments on the 50 countries most vulnerable to the climate crisis have doubled since the start of the coronavirus pandemic and are now at their highest level in more than three decades, it has warned Guardian.
The charity Debt Justice said countries most at risk of being hit by global warming are paying 15,5% of government revenue to external creditors - down from less than 8% before COVID-19 and 4% at its lowest point in 2010
Debt relief
Using data from the World Bank and the International Monetary Fund, Debt Justice said its new report shows the urgent need for comprehensive debt relief so that poor countries can invest in measures to tackle the climate crisis.
“Record debt levels are crushing the ability of the most vulnerable countries to deal with the extraordinary climate crisis. We need a fast and effective debt relief scheme to bring it down to a sustainable level,” says Heidi Chow, Executive Director of Debt Justice.
38% of the external interest payments of the 50 countries included in the report are to private creditors, 35% to multinational institutions, 14% to China and 13% to other governments.
Two rounds of comprehensive debt relief in the late 90s and mid-2000s saw poor countries' debt burdens fall sharply, but disbursements rose markedly in the 2010s before rebounding after 2020.
Causes of the new debt crisis
Debt Justice cites several reasons for the new debt crisis. One is that the debt suspension scheme agreed by creditors at the start of the pandemic has ended and the suspended debts must now be repaid.
Borrowers were also affected by the rise in global interest rates from the lows of 2010. In addition, the strong value of the US dollar increased the relative size of external debt payments (which are mainly owed in dollars).
A 10-day conference focused on countries' ability to finance climate action begins in Bonn this week. Debt Justice said the example of drought-stricken Zambia highlighted the need for action.
After three and a half years of negotiations, the Zambian government recently struck a debt restructuring deal with some – but not all – of its private creditors.
Zambia's debt deal allows for large increases in debt payments if the economy does better than expected, but there is no equivalent clause to reduce payments in the event of a shock event such as a drought. Under the terms of the debt deal, Zambia will have to pay bondholders $450 million this year.
“It is outrageous that Zambia's creditors have asked for a deal where they get huge increases in debt payments if things go well, but no losses if Zambia is hit by disasters like droughts. The $450 million that bondholders will receive this year is money that could be used for national disaster response. Beyond debt cancellation, rich countries must urgently repay their climate debt by providing grants to adequately finance the fight against climate change,” Debt Justice said.