Richer countries and private lenders are trapping heavily indebted countries into reliance on fossil fuels, according to a new report.
The pressure to repay debts is forcing poor nations to continue investing in fossil fuel projects to make their repayments on what are usually loans from richer nations and financial institutions, according to new analysis from the anti-debt campaigners Debt Justice and partners in affected countries.
The group is calling for creditors to cancel all debts for countries facing crisis – and especially those linked to fossil fuel projects.
“High debt levels are a major barrier to phasing out fossil fuels for many global south countries,” said Tess Woolfenden, a 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.”
According to the report, the debt owed by global south countries has increased by 150% since 2011 and 54 countries are in a debt crisis, having to spend five times more on repayments than on addressing the climate crisis.
Daniel Ribeiro, a programme coordinator for the Mozambican environmental campaign Justiça Ambiental, said the country’s debt burden had been doubled by loans taken without parliament’s permission from London-based banks in 2013, based on projections of earnings from its gas field discoveries.
Mozambique was plunged into a debt crisis when oil and gas prices fell in 2014-16, Ribeiro said, but the solutions from international lenders to bail out the country have relied on loans being repaid through future gas revenues.
“The debt caused by fossil fuels are being structured to be paid back by fossil fuels, solidifying a vicious cycle of having to move forward and having very severe consequences of not wanting to continue with fossil fuels,” Ribeiro said.
Suriname faced a similar situation after defaulting on its debt, when in 2020 it agreed a deal that would give creditors the right to almost 30% of Suriname’s oil revenue until 2050.
Sharda Ganga, the director of the Surinamese civil society group Projekta, said they had hoped the deal would have remained within the country’s climate commitments.
Ganga said: “As our debt has grown unsustainable, it dominates all policy decisions and impacts the lives of our citizens in every possible way. Earning money as quickly as possible in order to pay back the creditors is therefore priority number one. It means there is no more room for patience and such pesky things like sustainability or climate justice.
“The reality is that this is the new form of colonialism – we have exchanged one ruler for the rule of our creditors who basically already own what is ours. The difference is this time we signed the deal ourselves.”
Leandro Gómez, a campaigner on investment and rights at the Environment and Natural Resources Foundation (Farn) in Argentina, said the country has been stripped of sovereignty to transition away from fossil fuels, and was having to subsidise fossil fuel companies, encourage fracking projects and cancel renewable energy projects.
The report also said many climate-affected countries needed more access to grants to pay for the effects of changing climate, as many are forced further into debt to pay for repairs after cyclones and floods.
Most of the $10bn (£7bn) in financial assistance provided to Pakistan after last year’s floods was in the form of loans, while the share of Dominica’s debt of its gross domestic product (GDP) rose from 68% to 78% after Hurricane Maria in 2017.
Mae Buenaventura, from the Asian People’s Movement on Debt and Development, said: “The climate and debt crises emerged from the same system that is based on the global north’s relentless extraction of human, economic and environmental resources to feed the drive for profit and greed.”
She said debt cancellation was the least that rich countries and lenders could do.