A recent report by ActionAid and Development Finance International (DFI) has called for debt cancellation for countries vulnerable to climate change. These countries currently allocate about 10% of their national budgets to servicing external debt. According to the report, this has resulted in a significant strain on their financial resources. Climate-vulnerable countries are spending nearly 25 times more on debt repayments than on climate action.
The report, titled "Debt Fuels the Climate Crisis: How the Finance Flows," highlights the dire situation faced by these countries. Debt servicing absorbs 65% of their combined government revenue, severely limiting their ability to implement basic climate plans. The report also found that 93.5% of the most climate-vulnerable countries are either in debt distress or at significant risk of debt distress. This has raised concerns about their financial stability.
The report suggests that cancelling the debts of these countries could have a significant impact on their climate plans. It states that debt cancellation could fund their basic, unconditional national climate plans six times over. Alternatively, it could cover their combined spending on climate, health, education, and social protection twice over. This has led to calls for urgent action on debt restructuring.
Arthur Larok, Secretary-General of ActionAid International, emphasized the need for action on debt and climate crises. He stated that these crises have been treated separately for too long, despite being closely connected. Larok added that the devastating cost of inaction is significant and that a solution to this crisis is needed urgently.
ActionAid and DFI have proposed several measures to address the issue. They have called for mandatory rules on debt renegotiation and restructuring when 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.
The organisations also propose that loans considered to have been lent or borrowed irresponsibly should be prioritised for cancellation. This is based on United Nations Conference on Trade and Development (UNCTAD) principles. The goal is to provide relief to countries struggling with debt and climate change.
The proposal by ActionAid and DFI aims to address the interconnected issues of debt and climate change. By providing debt relief to climate-vulnerable countries, the organisations hope to create space for a safer and fairer future. The report's findings and recommendations highlight the need for urgent action to address these pressing global issues.
Key points
- Climate-vulnerable countries spend nearly 25 times more on debt repayments than on climate action.
- Debt servicing absorbs 65% of the combined government revenue of climate-vulnerable countries.
- Cancelling debts could fund basic national climate plans six times over or cover spending on climate, health, education, and social protection twice over.
