Rising debts of poor countries leave them vulnerable to climate crisis

The report ‘Rising Debt Burden in Global South Countries: An Obstacle to Climate and Development Goals’ examines what many economists and experts see as a looming problem”foreign debt crisis“and the lack of capacity of these countries to reduce their debt burden, limits its ability to respond to other crises, including the climate crisis.

“Most of the world is going through a process”polycrisis‘faces high levels of external debt combined with intertwined crises of food insecurity, fluctuating energy prices, the effects of war and, of course, the climate crisis,” underlines Ivana Vasic Lalovic, one of the report’s co-authors.

“But there are limits to what countries can do to respond to the climate crisis because They are forced to divert much of their resources to face their debts“, To add.

“So far, the response of the international financial community has been inadequate To help the poorest countries break this vicious cycle,” the document states.

“A more assertive response is urgently neededThe text states that it is an agreement combining updating debt resolution frameworks, debt relief measures and more grant-based financing.

Debt is twice as high as 2010

The report’s authors state: Foreign debt volume of low- and middle-income countries has doubled since 2010 and is currently worth more than $3 billion (2.81 billion euros). Almost 60 percent of this amount is in the hands of private creditors.

International financial institutions are considering this 79 countries are in crisis or at serious risk of crisis due to excessive debt. Of these, 39 are from sub-Saharan countries, 14 from Latin America and the Caribbean, and 11 from East Asia and the Pacific.

“However, debts to private creditors have high interest rates, short-term maturities and are very difficult to restructure,” the report states.

The result of all this is affected countries cannot devote economic resources to confront the climate emergencyit also affects the entire planet.

The majority (three-quarters) of these countries also “Highly vulnerable to climate change“, says the report. With the aggravating factor, “Even though they bear the least responsibility for the climate crisis, they face the greatest burdens in terms of the effects of the disasters it creates.“.

“Interest payments on external public debt limit countries’ ability to spend on urgent needs. climate response And climate change mitigation“Insist the authors of the report.

These interest payments have increased “significantly since 2010” relative to export earnings of low- and middle-income countries.

An “unsustainable” situation

According to the report, This year, money allocated to loans and their interest “will exceed investment needs for the Sustainable Development Goals, excluding those linked to climate change, in more than 100 countries.” of the whole world”.

Failure to finance these needs”direct human costs and has a negative impact on climate resilience” because “more robust health, food and other social systems are needed.” Resisting the effects of climate disasters“Claim the authors of the study.

In order for countries to get out of this vicious circle, debt resolution frameworks should be updated and “Faster and fairer treatment of debts covering all classes of creditors”.

Problem: This solution would require legislation requiring private investors to meet the same restructuring conditions as public sector creditors.

Authors call for debt cancellation and more financing from “all creditors” Donations from rich countries to low-income countries for climate response. Especially “after all, Rich countries are mainly responsible for the climate crisis” they emphasize.

They are also calling for a major new allocation of Special Drawing Rights from the International Monetary Fund as “a rapid way to provide more fiscal space to climate-vulnerable and debt-stressed countries.”

“The international financial community should accept this” The current dynamic, which puts debt servicing (no matter how burdensome) ahead of human needs and the urgency of preparing for and responding to the climate crisis, is unsustainable.”says co-author Lara Merling. “We must come forward with solutions. Millions of lives may depend on it,” she concludes.

Reference report at this link.

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Contact address of the environmental department:krisclimatica@prensaiberica.es