FIX DEBT TO FUND CLIMATE FUTURE

Reforming global debt architecture is key to unlocking climate finance, enabling vulnerable nations to invest in resilience and development

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THE MOUNTING debt crisis in developing countries is often portrayed as a failure of fiscal prudence or governance. But “The Jubilee Report”, released recently, shows that this narrative is both misleading and incomplete. The truth is, today’s crisis is a systemic failure—of global financial architecture, creditor behaviour and neglect.

Debtor governments borrowed beyond their means, often under poor terms and short maturities. Creditors, including private investors and multilateral institutions, knowingly extended excessive and risky financing in the greed for better returns. International financial institutions enabled the spiral by delaying hard conversations, offering bandaid solutions, and propping up a system that privileges short-term returns over long-term resilience.

At the root of the problem lies a gaping hole in the global economic order: there is no international mechanism to deal with sovereign debt distress. Unlike corporations that can declare bankruptcy and restructure, countries in crisis are left to navigate a complex maze of fragmented, creditor-dominated negotiations—with no framework for timely, fair or equitable outcomes. Meanwhile, the deep asymmetries that define the global financial system continue to widen. Countries like the US and France—whose public debt now exceeds 100 per cent of GDP—are considered safe borrowers. Zimbabwe and Chad, with far lower debt-to-GDP ratios, are penalised with exorbitant interest rates and harsh borrowing conditions. This is because wealthy countries borrow largely in their own currencies, enjoy favourable credit ratings, and are perceived as “low risk.”