Climate-vulnerable countries are being forced to spend nearly 25 times more on debt repayments than on climate action, according to a new report by ActionAid and Development Finance International (DFI).
The report, Debt Fuels the Climate Crisis: How the Finance Flows, analysed data on domestic revenues, sovereign debt, national budgets and climate plans in 65 countries considered highly vulnerable to climate change.
It found that in 2026, total debt servicing on external and domestic debt in these countries will be nearly four times their spending on education, almost seven times their health expenditure and nearly six times their spending on social protection.
The report said the countries are using an average of 65% of their national revenues to service debt, leaving fewer resources available for climate action and essential public services.
It further found that the countries are able to budget for only 48.9% of the costs of implementing their unconditional Nationally Determined Contributions (NDCs), on average.
Debt and climate crisis reinforce each other
The report describes the relationship between climate vulnerability and debt as a “vicious cycle”.
It said climate-related disasters such as floods, droughts, cyclones and heatwaves are increasing the financial pressure on vulnerable countries, forcing governments to borrow to finance recovery and reconstruction.
Those borrowing obligations can then lead to austerity measures that constrain spending on disaster preparedness, climate adaptation, resilience and transitions to greener economies, the report said.
The report also warned that heavily indebted countries may come under pressure to generate foreign currency to service their loans, encouraging greater dependence on fossil fuel exports and industrial agriculture.
Debt cancellation could finance climate plans
According to the report, cancelling debt in climate-vulnerable countries could provide enough resources to fund their unconditional NDCs six times over.
It also estimated that debt cancellation could finance the countries’ existing spending on climate, health, education and social protection twice over.
At the broader Global South level, the report said countries will pay about US$8.8 trillion in debt repayments in 2026, equivalent to 43.5% of their budget revenues.
It compared this with climate finance grants received by the Global South, arguing that the region pays approximately 225 times more in total debt repayments than it receives in climate finance grants.
Report questions loan-based climate finance
ActionAid and DFI also criticised the continued use of loans and other debt-creating instruments as climate finance.
The report said about two-thirds of the climate finance being provided by developed countries is in the form of loans or other debt-creating instruments.
It questioned whether loans can adequately address the financing needs of countries already struggling with high debt burdens and climate-related losses.
The report argues that climate finance provided by wealthier countries to developing countries should instead be public, grant-based and sufficient to meet the scale of the climate crisis.
Country examples
The report highlights the scale of the debt burden in several climate-vulnerable countries.
In Malawi, it said 70% of the national budget will go towards debt repayments in 2026, with debt servicing equivalent to 129% of government revenue.
Zambia is projected to spend more than 60% of its government budget on debt repayments while allocating 0.32% to climate activities, according to the report.
In Senegal, debt servicing is more than 600 times its climate spending, while Mozambique is spending 117 times more on debt repayments than on climate action.
Bangladesh, meanwhile, is spending 184 times more on debt repayment than on climate action, with debt servicing accounting for nearly 73% of its budget.
Women and young people bear disproportionate burden
The report also highlights the effects of the debt and climate crises on women and young people.
It said women and girls often bear a disproportionate share of the consequences of climate disasters and debt-driven cuts in public spending.
When household finances come under pressure, the report said, girls may be more likely to leave school or face risks such as child marriage.
Calls for debt relief and more grants
ActionAid and DFI are calling for the cancellation of unpayable or unjust external debt and for climate-vulnerable countries not to spend more than 10% of their national revenue on external debt repayments.
They are also proposing automatic suspension of debt servicing for at least five years for countries affected by major climate-related disasters.
Other recommendations include establishing a UN framework on sovereign debt, reforming debt sustainability assessments, requiring private creditors to participate in debt restructuring and regulating credit rating agencies.
The organisations are also calling for public debt and climate audits in countries facing debt crises and for a major increase in grant-based climate finance.
“Debt is a major—but fixable—barrier to climate action,” the report concluded, arguing that action on debt could free up domestic resources and enable vulnerable countries to invest more in climate action.
