Debt crippling climate change fight – IIED

The world has to find a solution to the burgeoning costs of debt amongst low income countries as at present they are unable to play their part in the global fight against climate change.

New analysis from the International Institute for Environment and Development (IIED) has warned increasing numbers of low-income countries are using more than 10% of their national budgets to service their debts and one – Angola – is using almost half. It leaves the nations with little to spare when it comes to funding mitigation against the impacts of climate change.

Researchers analysed the available data for least developed countries (LDCs) and found that at least 17 of them had seen the proportion of national budget being spent on servicing debts increase between 2015 and 2020. In the case of Senegal, it jumped from just over 7% to almost 35%. Ethiopia, Zambia, Tanzania, Guinea Bissau, Mozambique and Lesotho were all using more than 10% of their budgets on debt service payments with Angola spending a massive 46%.

“The current picture is likely to be more acute as the COVID-19 pandemic and the war in Ukraine have increased costs and sent debts spiralling for many low-income countries in the last two years. Data was not available for 19 of the LDCs,” it added.

The issue of escalating debts for low-income countries has risen up the agenda over the last six months as Sri Lanka, Ghana and Zambia have all defaulted on sovereign debt. Yesterday the International Monetary Fund (IMF) convened a sovereign debt roundtable to speed up its work on debt relief for countries in need. This will be followed by further meetings on the side lines of the World Bank and IMF spring meetings in Washington that get under way a next week.

Sejal Patel, a senior researcher for IIED, said: “With the costs of servicing debt taking up a significant portion of their national budgets, and with health, education, transport and other essential services to pay for, it’s hardly surprising that the costs of adapting to and mitigating climate change and nature loss are out of reach for many low-income countries. And yet, in many cases, not only are they rich in nature and biodiversity, they are also on the front lines of climate change and particularly vulnerable to its impacts.

“Linking debt restructuring to climate and nature outcomes could alleviate the economic crisis, help conserve and restore nature, and protect the lives and livelihoods of millions of people who are already suffering the effects of global warming but have done the least to cause it.”

In the midst of the pandemic, the World Bank and IMF promoted a debt service suspension initiative (DSSI) to free up countries’ financial resources to combat and recover from COVID-19. That scheme has now ended.  The IIED added the initiative only supported immediate relief on interest payments rather than the much-needed systematic initiatives to redesign debt financing to support post-COVID-19 recovery.