Climate vulnerable countries debt payments highest in three decades

Debt payments for the countries most vulnerable to climate change are set to hit their highest level in over 30 years. New figures released today by Debt Justice, calculated from World Bank and IMF data, show that in 2024 external debt payments will be at their highest level since at least 1990.[1]

The 50 countries most vulnerable to climate change are now spending four times more on external debt payments than in 2010, according to the calculations. High debt payments are preventing countries from investing in measures to respond to the climate emergency.

Heidi Chow, Executive Director of Debt Justice, said:
“Record levels of debt are crushing the ability of the most vulnerable countries to tackle the climate emergency. We need a rapid and effective debt relief scheme to cancel debts down to a sustainable level. The UK can play its part by legislating to ensure private lenders take part in international debt relief agreements.”

For the countries covered in the figures, 38% of their external interest payments are to private lenders, 35% to multilateral institutions, 14% to China and 13% to other governments.[2]

Zambia has declared a national disaster because of the devastating drought which has hit the country. After three-and-a-half years of negotiations, the Zambian government has just sealed a debt restructuring deal with some of its private lenders. The deal will see banks and asset managers repaid 13% more than governments, despite lending at higher interest rates originally.[3] Zambia still has to reach a deal with other private lenders.[4]

Zambia’s debt restructuring deals allow for large increases in debt payments if the economy does better than expected, but there is no equivalent clause to reduce payments in the event of a shock, such as a drought. Under the terms of the debt deal, Zambia will have to pay bondholders including BlackRock $450 million this year.

Tim Jones, Head of Policy at Debt Justice, said:
“It is outrageous that Zambia’s creditors have demanded a deal where they get huge increases in debt payments if things go well, but no losses if Zambia is hit by disasters such as droughts. The $450 million going to bondholders this year is money which could have been used to respond to the national disaster.

“As well as debt cancellation, rich countries urgently need to pay their climate debt by delivering grant-based, adequate climate finance.”

The Bonn climate change conference is due to take place on 3-13 June 2024. The agenda will focus on countries’ ability to finance climate action, including through climate finance and unsustainable debt levels.