The Global South's Vicious Cycle Of Climate Debt

It has been said that opportunity and risk come in pairs, with development challenges spurring entrepreneurs and investors to find income-generating solutions to crises. But today, in our anthropogenic world, where people are increasingly feeling the effects of climate change, the correlation between risk and reward is becoming much more tangible.

Consider, too, that many investors both sovereigns and corporates that are positioned to capitalise on opportunities in combating climate risk are the same ones that contributed the most to the climate crisis, polluting their way to prosperity. Indeed, by turning climate finance provision for developing countries into a business opportunity, the parties most to blame for the climate catastrophe are again reaping the profits.

That is the disheartening truth of the matter efforts to tackle the escalating climate crisis exacerbate long-running macroeconomic management and debt sustainability challenges in the Global South, especially in Africa. Emerging and developing market economies have been pushed into a nefarious debt trap, taking on financing to combat the effects of climate change at prohibitively high interest rates, which sharply increase debt servicing costs. More will fall into debt distress.

More must be done at the global level to promote the principles of climate justice enshrined almost a decade ago in the 2015 Paris Agreement and equalise access to affordable long-term climate financing. In the absence of such reforms, the additional costs associated with combating climate change will further exacerbate the debt-climate trade-off and undermine the transition toward a carbon-neutral economy in the Global South.

Nearly 60 of the developing economies most vulnerable to climate change are also at considerable risk of fiscal crisis. This growing and daunting intersection of climate and debt crisis includes several African countries, some of which have already defaulted on their external debt.