All too often, climate-vulnerable countries find themselves tangled with opposing tensions. Sovereign debt invites a country’s growth, but the inherent burden blocks their ability to take important climate action. That conundrum has been revealed in a new report from ActionAid, alongside a series of possible solutions. The ActionAid report reveals the scale at which sovereign debt is draining resources from countries on the front lines of the climate crisis and leaves communities dangerously exposed to worsening floods, droughts, heat, and hunger. The most climate-vulnerable countries are spending nearly 25 times more on debt repayments than on climate action, while debt servicing absorbs 65% of their combined government revenue. In fact, 93.5% of the most climate-vulnerable countries are in, or at significant risk of, debt distress. The Global South is paying approximately 225 times more in debt repayments than it receives in grant-based climate finance — US$8.8 trillion in repayments in 2026, compared with the latest figure of US$39 billion in climate grants in 2024. This is a vicious cycle: climate disasters force countries to take new loans to recover. Debt repayments and austerity then squeeze investment in response, resilience, essential public services and a just transition. To earn the foreign currency demanded by lenders, governments also face pressure to expand fossil fuel extraction and industrial agriculture, driving more emissions, ecological damage, and climate disasters – – and still more debt. The report analyses public revenues, debt repayments, national budgets, and climate plans across the 65 most climate-vulnerable countries. It concludes that debt and climate are locked in a vicious cycle, but it is one that can be broken through debt cancellation, grant-based climate finance, and a fairer international debt system. It also provides examples of how debt drains resources away from climate solutions. In Senegal, for example, debt servicing in 2026 is more than 600 times the country’s budgeted spending on climate action and exceeds 96% of government revenue. It shows that high debt levels are delaying investment in agroecology, which is a people-led solution that can strengthen food security, livelihoods, and climate resilience. In fact, two-thirds of what rich countries label climate finance arrives as loans rather than grants, much of it at high commercial interest rates. This creates an illusion of support while pushing recipient countries further into debt. Debt is blocking climate action in these countries, so breaking the debt trap is one of the most powerful and achievable solutions within reach. Debt cancellation in climate-vulnerable countries could fund their basic, unconditional national climate plans six times over, or cover current climate, health, education, and social-protection spending combined, twice over. In the report, ActionAid and its allies are calling for governments and international institutions to: Cancel unpayable or unjust debt for countries spending more than 10% of their revenues on external debt repayments; Agree a universal rule to suspend debt payments for any country hit by a climate disaster, applying to all creditors, not only those who volunteer; Create a UN Framework Convention on Sovereign Debt that gives indebted countries an equal voice and establishes a fair multilateral debt-resolution mechanism; Legislate in London and New York to require private creditors to take part meaningfully in debt restructuring. Around 90% of sovereign bond contracts are governed by UK law; Regulate existing Credit Rating Agencies to remove conflicts of interest and bias, and establish regional and public credit rating agencies or a multilateral credit rating agency; Ensure that climate finance comes in the form of grants, not loans or any other debt-creating financial instruments, and is sufficient to meet the scale of the climate crisis; Reform debt-sustainability assessments so that climate responses, public services, and human rights are central to decisions about what countries can afford to repay; and, Conduct public debt and climate audits in countries facing debt crises to examine how domestic and external debt deepen climate impacts, poverty and exclusion — particularly for women and girls – -and identify actions to break the cycle. Niranjali Amerasinghe, executive director of ActionAid USA, explains that wealthy countries like the US “have outsized global financial power” yet are unwilling “to provide climate finance at scale and relieve the debt burden of climate vulnerable countries.” Calling that attitude “unconscionable,” Amerasinghe notes that the US spends trillions for defense budgets but only “peanuts for the biggest existential crisis of a generation.”
