WHAT IS THE DEBT AND CLIMATE LINK?

Over half of the low- and middle-income nations with high climate vulnerability are either already in debt distress or at high risk of it

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FOR A growing number of developing countries, debt and climate crises are coming together in a vicious circle. A study by United Nations Environment Programme (UNEP) and School of Oriental and African Studies, UK, found that climate change has already raised the average cost of debt by 117 basis points (1 basis point is equal to 0.01 per cent) for a sample of developing countries.

For several of the most vulnerable countries, the costs of addressing climate change, as reported by them, amount to costs of damages for isolated climate-induced/climate-worsened weather events. For instance, past hurricanes are a primary reason that Dominica and other Caribbean countries are heavily indebted. When Dominica was hit by Hurricane Erika in 2015, the damages amounted to up to 90 per cent of their total GDP. More recently, several small island countries, at greatest risk of sea level rise caused by climate change, have rallied together to call for debt relief in the face of mounting physical and economic impacts of climate change. Haiti, among the most vulnerable and severely indebted, faced damages of at least $432.38 million in 2023 alone from “climatological” natural disasters alone. These vulnerabilities reinforce each other, demanding that debt and climate finance be addressed together.

To understand the overlap of debt and climate vulnerability, this cover story examines the countries most at risk from climate impacts and most burdened by debt. Over half of the lowand middle-income countries (LMICs) with high climate vulnerability are either already in debt distress or at high risk of it. These 36 lowand middle-income climate-vulnerable countries are either already in debt distress or at high risk of it (see ‘Threat from all corners’ p42). Their experiences offer a sharp lens into how debt burdens shrink fiscal space, deepen climate vulnerability, and how international climate finance still falls short of addressing this imbalance.