Debt Servicing Outpaces Climate Spending in Vulnerable Nations by a Wide Margin

ActionAid’s latest report, “Debt Fuels the Climate Crisis: How the Finance Flows,” examines 65 countries most at risk from climate change and reveals that debt servicing is projected to absorb 65% of government revenue by 2026, leaving only about a third for climate mitigation, health, education and other services. More than 93% of these nations are already in or near a debt crisis, and a large share of climate-related financing from the Global North is provided as loans, further increasing debt loads.

Because external debt must be repaid in strong foreign currencies, governments often resort to exporting fossil fuels to earn the needed foreign exchange. The report cites Zambia as an example, where drought-driven debt pressures have led to severe budget constraints and social distress. It recommends debt cancellation or renegotiation to reduce repayment burdens, aiming to keep debt service below 10% of national revenue. Experts caution that outright cancellation could affect lenders’ credit ratings, suggesting that restructuring may be a more viable path.