ADDRESS DEBT DISTRESS

Today’s global economic turmoil is not just about trade.

- 

As G20 finance ministers gather in Washington this week during the annual spring meetings of the International Monetary Fund and World Bank, IMF Managing Director Kristalina Georgieva has warned that growing economic uncertainty and financial market stress pose serious threats to developing countries.

The danger is particularly acute for highly indebted economies, which are now facing weaker growth prospects and reduced financial support from the United States and other donor countries. In February, the IMF estimated that nearly half of the lowest-income countries were at risk of debt distress, at which point they may no longer be able to meet their debt obligations. That number is expected to rise as conditions continue to deteriorate.

Compounding the crisis, the world’s poorest countries—especially small island developing states—are highly vulnerable to climate change and biodiversity loss. Extreme weather events like hurricanes, droughts, and floods can wipe out critical infrastructure and cripple agricultural production in an instant, while slower-onset changes like rising temperatures and shifting rainfall patterns require continuous and costly adaptation measures.

The debt and climate crises are closely intertwined. As more public funds are diverted toward disaster relief and recovery, fewer resources are available for climate adaptation, nature conservation, and long-term investment. This, in turn, increases vulnerability, weakens growth prospects, and drives up borrowing costs, shrinking fiscal space even further. The result is a self-reinforcing, vicious circle.