Global South countries 'trapped' in fossil fuel production to repay debts, study finds

22nd August 2023


Countries in the Global South are trapped in relying on fossil fuel production to repay debts, a new report from the charity Debt Justice claims.

It also reveals that these countries are currently spending five times more on repaying debts than they are on addressing climate change, with external debt payments increasing by 150% between 2011 and 2023, and reaching their highest levels in 25 years.

Nations including Argentina, Uganda and Mozambique may find it impossible to phase out fossil fuels and transition to renewable, sustainable energy sources, unless this “debt-fossil fuel trap” is addressed, according to the authors.

Argentina, for example, is committing to fracking in an oil and gas field in Northern Patagonia as a way to solve the country’s debt crisis and wider economic problems, backed by the International Monetary Fund (IMF).

The IMF and World Bank also overestimate anticipated revenues from fossil fuel projects, leaving countries at risk of further debt while remaining locked in climate-harmful activities, according to the report.

It suggests that there are 54 countries in a debt crisis, and highlights how the situation could get much worse as interest rates rise, markets destabilise and the war in Ukraine pushes up food and energy prices.

“High debt levels are a major barrier to phasing out fossil fuels for many Global South countries,” said Tess Woolfenden, senior policy officer at Debt Justice.

“Many countries are trapped exploiting fossil fuels to generate revenue to repay debt, while at the same time, fossil fuel projects often do not generate the revenues expected and can leave countries further indebted than when they started. This toxic trap must end.”

In 2009, Global North governments committed to providing $100bn (£79bn) in climate finance every year to Global South countries by 2020, but continuously failed to meet this commitment, which itself is thought to be well below what is needed for climate adaptation and mitigation.

However, debt levels within many Global South countries also act as a major barrier to these nations accessing the finance they require to transition away from fossil fuels.

To remove high debt burdens as a significant barrier to fossil fuel phase-out and the transition to clean energy, the report calls on wealthy governments and institutions to:

• Implement ambitious debt cancellation for all countries that need it, across all creditors, free from economic conditions

• Recognise debts accrued from fossil fuel projects as illegitimate and ensure they are cancelled

• Significantly scale up grant-based, new and additional public climate finance, as a form of reparations in light of the climate and ecological debt owed by the Global North to the Global South

• Bilateral and multilateral finance should be aligned with a 1.5 °C warming scenario and fair shares calculations, and not be used to finance fossil fuels.

Arthur Larok, secretary general of ActionAid International, commented: “Countries on the front lines of the climate crisis urgently need funds to cope with impacts and to scale up green technologies.

“But climate disasters are pushing vulnerable countries deeper into debt, trapping them in a vicious cycle that perversely drives investment in the fossil fuels that further accelerate the crisis.

“When it comes to climate solutions, debt cancellation is a low-hanging fruit that can restrain expansion of climate-harming industries, and free up much-needed finance in vulnerable countries.”

Image credit: Shutterstock

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