Report calls for debt cancellation for climate-vulnerable countries
The report, titled Debt Fuels the Climate Crisis: How the Finance Flows, says climate-vulnerable countries are spending nearly 25 times more on debt repayments than on climate action.
A new report has urged debt cancellation for countries most at risk from climate change, to free up funds for climate action. ActionAid and Development Finance International (DFI) recommend debt forgiveness for nations spending over 10% of their budgets servicing external debt. These countries currently allocate nearly 25 times more to debt repayments than to climate initiatives, with 65% of their revenues dedicated to debt servicing.
Research shows 93.5% of the most vulnerable nations face debt distress or significant risk. Cancelling these debts could fund basic, unconditional climate plans six times over, or cover climate, health, education and social protection spending twice over. The activists call for rules mandating debt renegotiation and restructuring when burdens become unsustainable, along with an automatic suspension of debt servicing for at least five years following major climate disasters.
Loans deemed irresponsible under UNCTAD principles should also be prioritised for cancellation. ActionAid's Secretary-General, Arthur Larok, highlighted the close relationship between debt and climate crises, stating that resolving debt could unlock significant resources to protect lives and create a safer, fairer future. The report comes as Kenya, currently grappling with high debt repayments and climate change impacts, allocates Sh673.76 billion for external debt service, or 15.6% of its national budget, in the 2025/26 financial year.
China is Kenya's largest bilateral lender, accounting for about 10.8% of the country's total external debt. The study identifies Kenya among several countries, including Pakistan, Angola, Sri Lanka, Ethiopia, Zambia, Bangladesh, Laos, Egypt, Nigeria, Ecuador, Cambodia, Belarus, Côte d’Ivoire, Cameroon, South Africa, Congo, Brazil, Mongolia, and Argentina, with substantial debts owed to China.
Many of these debts are tied to commodity-backed loans, raising concerns about human rights and environmental abuses linked to projects involving Chinese mining companies. ActionAid and DFI urge affected countries to conduct public debt and climate audits for transparency and to show how debt and climate pressures impact vulnerable groups, particularly women and girls.
They also call for developed nations to provide financial and technical support to developing countries to reduce greenhouse gas emissions and adapt to climate change, with such climate finance provided as grants, not loans.
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