Rising foreign debt is hindering the ability of low- and middle-income countries to respond effectively to the climate crisis. Climate disasters are increasingly affecting these nations, creating a vicious cycle where debt and vulnerability feed one another and obstruct progress toward the Sustainable Development Goals (SDGs).
The report Rising Debt Burden in Global South Countries: An Obstacle to Climate and Development Goals examines what many economists and specialists describe as a looming foreign debt crisis. It argues that the limited capacity to reduce debt burdens constrains these countries from addressing other urgent crises, including climate-related challenges.
Ivana Vasic Lalovic, a co-author of the study, points to a broader polycrisis in which high external debt coincides with food insecurity, volatile energy prices, regional conflicts, and the climate emergency. She notes that governments are often forced to divert substantial resources to service debt instead of investing in resilience and adaptation.
The authors argue that the response from the international financial community to date has been insufficient to help the poorest countries break this destructive loop.
A more robust response is urgently needed. The text outlines an agenda that blends updating debt resolution frameworks with debt relief measures and expanded grant-based financing to improve climate resilience.
Debt is twice as high as 2010
The report estimates that the foreign debt stock of low- and middle-income countries has doubled since 2010 and now exceeds $3 trillion (about 2.81 trillion euros). Roughly 60 percent of this debt lies with private creditors, increasing the challenge of restructuring and negotiation.
International financial institutions note that 79 countries are in crisis or at high risk due to heavy indebtedness. Among these, 39 are in sub-Saharan Africa, 14 in Latin America and the Caribbean, and 11 in East Asia and the Pacific.
The report emphasizes that debts to private creditors carry high interest rates, short maturities, and complex restructuring processes, limiting a country’s ability to fund climate action and other essential policies. As a result, affected nations struggle to mobilize resources needed to confront the climate emergency, with global repercussions as climate impacts accumulate.
The majority of these countries are highly vulnerable to climate change, even though they contribute the least to its causes. Their exposure to disasters, coupled with limited fiscal space, amplifies the burden on people and ecosystems alike.
Fridays for Future rallies and other climate protests have, at times, brought attention to the strain posed by external debt on political will and practical action.
Interest payments on external debt restrict a country’s ability to fund urgent climate responses and mitigation efforts. Since 2010, these payments have risen significantly relative to export earnings in many low- and middle-income economies.
An unsustainable situation
The study argues that this year the money directed toward loan principal and interest will exceed the resources needed for most SDG-related investments in many countries, not counting climate-specific projects. This gap directly impacts human well-being and weakens climate resilience by compromising health, food security, and other social systems that underpin effective adaptation.
To escape the cycle, the authors call for debt resolution frameworks that accelerate fair treatment across creditor classes and make debt relief more accessible. Any lasting solution would require reforms that bring private investors under the same restructuring standards as public lenders.
In parallel, the report urges debt cancellation and increased financing from all creditors, noting that wealthier nations bear significant responsibility for the climate crisis. A major new allocation of Special Drawing Rights from the IMF is proposed as a rapid mechanism to expand fiscal space for climate-vulnerable, debt-stressed countries.
The co-author Lara Merling concludes that the international financial system must shift toward prioritizing human needs and climate readiness. The paper emphasizes that timely, credible action could save millions of lives and safeguard communities most at risk from climate shocks.
The reference report is available through the corresponding link. ……………………
Note: The intent is to describe the scale and urgency of debt-related barriers to climate action, and to outline actionable pathways for debt reform and greater concessional financing to bolster resilience in the Global South.