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    Download PDF Print Article Countries in the Global South, which are the least responsible for carbon emissions and the climate crisis, are feeling its impacts first and most severely. Climate change is leading to more frequent and intense extreme weather events around the world. Caribbean islands and other Small Island Developing States in particular are responsible for just 0. This crisis poses an existential threat to human society, and indeed to all life on earth.

    The IPCC has reported that temperatures are rising faster than at any time for at least 2, years, with CO2 levels in the atmosphere the highest for 2 million years. Unless deep and rapid cuts in emissions occur, the Paris Agreement goals will be out of reach, and the planet devastated. Yet, the climate debt is not being paid. Rich countries are failing to meet their already inadequate commitments to provide climate finance to mitigate and adapt to the effects of climate change, whilst spending every UN climate conference avoiding the topic of payment for the damage caused by the climate emergency.

    There is another illegitimate form of climate debt that is being paid every day by poor countries to the rich countries. It takes the form of interest payments on their massive debts: debt built up in rebuilding from hurricanes, paying off loans to development banks for climate investment, and adapting to their farmland becoming desert. Dominica and the spiral of climate debt Dominica, a small island of 70, people in the eastern Caribbean, is on the front line of the climate emergency.

    Days after hurricane Maria, Dominica had to find several million dollars for a debt repayment that fell due. Extreme climate events tend to be particularly disastrous for small island states as their small landmass means that the entire country is often affected. Since its independence in , Dominica has needed to diversify its economy to avoid reliance on a single crop, with the attendant exposure to price fluctuations and climate-related crop failure.

    However, Dominica is not doomed by history and geography. It has passed impressive climate resilience legislation that aims to make the island hurricane-proof, through building codes, diversified agriculture, geothermal energy and sustainable high-end tourism. It has successfully reconstructed after Erika and Maria. But this requires funding. The relationship between the climate and debt crises Climate-vulnerable countries like Dominica are trapped in a vicious circle of climate-related disasters and debt.

    Every time they are hit by a hurricane, they go further into debt to cover the costs of reconstruction. As an increasing proportion of their national income goes to debt payments, they are less able to invest in preparing for future disasters, or in rebuilding when they arrive.

    Their creditors, who profit from the interest on their mounting debt, are governments and companies in the Global North that caused the climate crisis and its destructive effects in the first place. Wealthy, high-polluting countries have recognised in principle their greater responsibility for responding to the climate crisis. The United Nations Framework Convention on Climate Change , signed by all UN member states, asserts that those states which have historically contributed the most to climate change are most responsible for dealing with its impacts.

    Even if one ignores the widespread over-reporting by countries, this target is not being met. Worse, around two thirds of climate finance is offered in the form of loans, often at market rates of relatively high rates of interest. Instead of addressing the historic climate debt owed by Global North countries, most climate finance is adding to the unsustainable debt of Global South countries, whilst generating profits for lenders in the North.

    Many climate-vulnerable countries also cannot access zero-interest loans from international financial institutions like the IMF. The most indebted countries are largely classified as middle income, meaning that they must pay interest. IMF loans are conditional on recipient countries implementing austerity policies, which has recently provoked large-scale protests in Sudan, Tunisia, Kenya and elsewhere.

    The lack of support from the international community leaves climate-vulnerable countries with no option but to look to the international capital markets to raise funds. These high interest rates reflect that the loans are inherently risky. Lending for development is premised on the assumption that the investment will bring returns for the borrowing government, enabling them to repay the loans later.

    But investment for climate adaptation is fundamentally about reducing future damage, rather than generating income. Hurricane-resistant buildings will not normally bring profits. In a final irony, lenders are beginning to factor climate vulnerability into interest rates , on the principle that Caribbean islands, for example, are at higher risk of default because they will continue to be hit by intensifying hurricanes.

    In other words, Global North lenders punish climate-vulnerable countries for being the casualties of the climate crisis. The result is that higher repayments mean debt becomes unsustainable at an increasing rate, increasing the risk of default and further driving up interest rates. This vortex of spiralling debt is driving some Global South countries into measures that exacerbate the climate crisis.

    Exploitation of natural resources can be one of the only ways of earning foreign currency revenue through exports. Yet forest exploitation can lead to deforestation, soil erosion and ecosystem degradation, exacerbating the effects of future climate-related droughts and storms, while fossil fuel exploitation intensifies the underlying climate emergency.

    Creditors are even insisting that countries undertake activities that harm the environment, in order to keep paying off their debts. The international response When the pandemic hit in , world leaders were not slow to see the risk of the debt crisis tipping over into a wave of sovereign defaults. In April , the G20 announced the suspension of debt payments for up to 73 of the poorest countries, and has subsequently extended the Debt Service Suspension Initiative until December This was followed by the Common Framework in November , which aimed to provide a format for all creditors, including private lenders, to come together to agree to restructuring debts for countries with unsustainable debt.

    The G20 rose to the occasion in terms of speed and rhetoric, but has fallen far short on substance. Debt suspension served only to push a small proportion of Global South debts into the future.

    The majority of the most indebted and most climate-vulnerable countries, which are classified as middle income, were ineligible and thus excluded. The Common Framework, meanwhile, is yet to achieve anything. Only three of the 73 eligible countries have applied , and none of the three have seen any debts restructured.

    Global South countries realise that, without a process to compel private creditors to participate, and with no concrete prospects for debt cancellation, applying to such a program is not worth the potential damage to their credit ratings. Countries, especially those that have no better options than borrowing on the private finance market, worry that if they try to restructure debts to private creditors, they will pay even higher interest on future loans.

    It is symptomatic of the power imbalances in global decision-making that the response to the debt crisis has come from the G20 — a self-selected group of mainly rich creditor countries, of which many are former colonial powers bearing heavy responsibility for the climate crisis — rather than the UN, where the Global South has a presence. Indeed, in the UN voted to move towards creating a sovereign debt restructuring mechanism, with countries in favour, 41 abstaining and just 6 against.

    However, the 6 included the US and UK, jurisdictions under which most international debt contracts are governed, essentially blocking progress. Small island developing states have been vocal in demanding a more just approach to climate finance and debt, but they are simply not at the table when decisions are taken on the debt crisis.

    It is no surprise then that those decisions reflect the interests of creditors rather than climate justice. Solutions The climate crisis is also a debt crisis, and the two cannot be addressed in isolation from each other. Any potential solution has to recognise the mutually reinforcing effects of the interlocking crises, and address both elements with seriousness.

    The urgency of the climate crisis requires debt cancellation, not mere suspension of payments. In order to prevent future debt crises, grant-based climate finance must be available to enable countries to adapt to and mitigate the climate crisis without saddling them with more debt. Rich countries must accept their responsibility to pay for the loss and damage already caused.

    As the urgency of the crisis becomes clear, false and partial solutions have begun to proliferate, which misleadingly present the crisis as solvable without deviation from business as usual. Debt swaps , where some debt is written off in return for debtor countries investing in conservation goals or climate adaptation and mitigation, can be of some benefit if they involve significant debt cancellation.

    However, in practice, the amounts of debt written off have been inadequate to the scale of the crisis because debt swaps are complex and costly to implement, and give power to creditors to determine environmental priorities. The pandemic has revealed the vastly different circumstances of rich countries, able to print money at almost no cost to protect lives and jobs and stimulate the recovery, and poorer countries that must borrow at high interest, adding to already unsustainable debt piles.

    The climate crisis requires much greater and longer-term investment, which will be out of reach for Global South countries that must devote a significant proportion of their income to repaying debt.

    Without debt cancellation, vulnerable countries will never be able to free up sufficient resources to respond to the challenges of the climate emergency. Large-scale debt cancellation could take place through a strengthened Common Framework or an alternative mechanism, but it must be open to all countries that need it, and require all creditors, including private ones, to participate. As climate-related extreme events become more frequent, the world needs a mechanism that allows countries to suspend debt repayments in the immediate aftermath of a calamity, when resources are critically needed for the emergency response.

    An automatic interest-free moratorium on debt repayments should be followed by assessment of the impact of the disaster, and debt restructuring if needed. Ultimately, a multilateral debt workout mechanism is needed that would provide a structure to enable effectively-bankrupt states to bring their debts down to sustainable levels. It needs to be enforceable by law, in the same way as individual bankruptcy proceedings, to prevent vulture funds from suing.

    These reforms to the debt system are necessary but not sufficient. A just climate transition requires costs to be met in a sustainable way through climate finance grants, rather than by affected countries taking on debt. A new fund should be created under the United Nations Framework Convention on Climate Change, funded by rich and polluting countries, to provide support to countries experiencing climate-related disasters. Climate justice is essential to the future of the planet, and it is impossible without debt justice.

    The Global South is not responsible for creating the climate crisis, and the legacy of colonialism and unsustainable debt have left it least able to afford the investment needed to mitigate and adapt to the coming emergency. Global South leaders from around the world are demanding debt cancellation for climate justice.

    COP26 in November will be a crucial moment of solidarity between protesters in the street, Global South negotiators in the conference hall, and communities around the world who are rising up to demand collective liberation from debt, exploitation and climate catastrophe.

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    It has passed impressive climate resilience legislation that aims to make the island hurricane-proof, through building codes, diversified agriculture, geothermal energy and sustainable high-end tourism. It has successfully reconstructed after Erika and Maria. But this requires funding. The relationship between the climate and debt crises Climate-vulnerable countries like Dominica are trapped in a vicious circle of climate-related disasters and debt.

    Every time they are hit by a hurricane, they go further into debt to cover the costs of reconstruction. As an increasing proportion of their national income goes to debt payments, they are less able to invest in preparing for future disasters, or in rebuilding when they arrive. Their creditors, who profit from the interest on their mounting debt, are governments and companies in the Global North that caused the climate crisis and its destructive effects in the first place.

    Wealthy, high-polluting countries have recognised in principle their greater responsibility for responding to the climate crisis.

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    The United Nations Framework Convention on Climate Changesigned by all UN member states, asserts that those states which have historically contributed the most to climate change are most responsible for dealing with its impacts.

    Even if one ignores the widespread over-reporting by countries, this target is not being met. Worse, around two thirds of climate finance is offered in the form of loans, often at market rates of relatively high rates of interest.

    Instead of addressing the historic climate debt owed by Global North countries, most climate finance is adding to the unsustainable debt of Global South countries, whilst generating profits for lenders in the North. Many climate-vulnerable countries also cannot access zero-interest loans from international financial institutions like the IMF.

    The most indebted countries are largely classified as middle income, meaning that they must pay interest. IMF loans are conditional on recipient countries implementing austerity policies, which has recently provoked large-scale protests in Sudan, Tunisia, Kenya and elsewhere. The lack of support from the international community leaves climate-vulnerable countries with no option but to look to the international capital markets to raise funds.

    These high interest rates reflect that the loans are inherently risky. Lending for development is premised on the assumption that the investment will bring returns for the borrowing government, enabling them to repay the loans later.

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    But investment for climate adaptation is fundamentally about reducing future damage, rather than generating income. Hurricane-resistant buildings will not normally bring profits. In a final irony, lenders are beginning to factor climate vulnerability into interest rateson the principle that Caribbean islands, for example, are at higher risk of default because they will continue to be hit by intensifying hurricanes.

    In other words, Global North lenders punish climate-vulnerable countries for being the casualties of the climate crisis. The result is that higher repayments mean debt becomes unsustainable at an increasing rate, increasing the risk of default and further driving up interest rates. This vortex of spiralling debt is driving some Global South countries into measures that exacerbate the climate crisis.

    Exploitation of natural resources can be one of the only ways of earning foreign currency revenue through exports. Yet forest exploitation can lead to deforestation, soil erosion and ecosystem degradation, exacerbating the effects of future climate-related droughts and storms, while fossil fuel exploitation intensifies the underlying climate emergency.

    Creditors are even insisting that countries undertake activities that harm the environment, in order to keep paying off their debts.

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    The international response When the pandemic hit inworld leaders were not slow to see the risk of the debt crisis tipping over into a wave of sovereign defaults. In Aprilthe G20 announced the suspension of debt payments for up to 73 of the poorest countries, and has subsequently extended the Debt Service Suspension Initiative until December This was followed by the Common Framework in Novemberwhich aimed to provide a format for all creditors, including private lenders, to come together to agree to restructuring debts for countries with unsustainable debt.

    The G20 rose to the occasion in terms of speed and rhetoric, but has fallen far short on substance. Debt suspension served only to push a small proportion of Global South debts into the future.

    The majority of the most indebted and most climate-vulnerable countries, which are classified as middle income, were ineligible and thus excluded. The Common Framework, meanwhile, is yet to achieve anything.

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    Only three of the 73 eligible countries have appliedand none of the three have seen any debts restructured. Global South countries realise that, without a process to compel private creditors to participate, and with no concrete prospects for debt cancellation, applying to such a program is not worth the potential damage to their credit ratings. Countries, especially those that have no better options than borrowing on the private finance market, worry that if they try to restructure debts to private creditors, they will pay even higher interest on future loans.

    It is symptomatic of the power imbalances in global decision-making that the response to the debt crisis has come from the G20 — a self-selected group of mainly rich creditor countries, of which many are former colonial powers bearing heavy responsibility for the climate crisis — rather than the UN, where the Global South has a presence. Indeed, in the UN voted to move towards creating a sovereign debt restructuring mechanism, with countries in favour, 41 abstaining and just 6 against.

    However, the 6 included the US and UK, jurisdictions under which most international debt contracts are governed, essentially blocking progress.

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