As the world gathered in Seville for the Fourth International Conference on Financing for Development (FfD4), a growing frustration echoed through the voices of leaders from developing nations. For many of them, tackling climate change isn’t just a matter of will it’s a matter of survival being delayed by debt.
Across the Global South, countries already facing the brunt of extreme weather events are also struggling with massive debt burdens. In the face of rising costs of climate adaptation, these nations find themselves forced to choose between protecting their people and repaying creditors. The global financial system, they argue, is not only outdated but unfairly stacked against them.
At the centre of the crisis is a system that offers no formal structure for countries to resolve debt distress. While corporations have access to bankruptcy processes, sovereign nations are left navigating a patchwork of slow and creditor-dominated negotiations. This often leaves little room for investments in resilience, development, or climate action.
The imbalance is sharp. Rich nations with high debt levels borrow cheaply and freely. Poorer countries with far lower debt-to-GDP ratios are penalised with high interest rates and strict borrowing terms. The reason lies in global perceptions wealthier nations are seen as safe, while poorer ones face volatility, low credit ratings, and currency risks.
Developing nations at the conference pushed for change, demanding a multilateral sovereign debt resolution mechanism under the United Nations. Such a mechanism, they argued, would ensure that debt resolution processes are fair, timely, and not controlled by creditors alone. However, hopes for a strong commitment were dashed as powerful nations in the Global North resisted. In the final agreement, references to such reforms were softened or omitted.
While a comprehensive overhaul was avoided, several alternative tools and proposals were discussed. One idea gaining traction is the use of debt-for-climate swaps. These arrangements allow countries to redirect debt repayments towards environmental projects, a model used in countries like Belize and Seychelles. While promising in theory, the total relief provided by these swaps has been modest and the implementation slow, offering little overall change in fiscal space.
Another proposal involves climate-resilient debt clauses, which temporarily suspend debt repayments when countries face natural disasters. These clauses have been adopted in some Caribbean nations, but critics argue that interest continues to accumulate during the pause, offering only short-term relief.
Meanwhile, experts from a coalition of countries, including Kenya, Colombia, France, and Germany, are pushing for deeper reform of how debt sustainability is assessed. They want climate risks to be factored into decisions about how much countries can borrow and repay. This would reflect the new economic realities of a warming world.
However, one of the most controversial and vital demands remains largely unaddressed: debt cancellation. Many developing nations say that without it, any new climate finance will simply cancel out against existing debt payments. They point out that dozens of countries now spend more repaying debt than they receive in aid or climate funding.
As the Seville conference concludes, one thing is clear unless the global debt system is restructured, climate action will remain out of reach for many of the world’s most vulnerable countries. The gap between what is promised and what is possible continues to grow, and time is running out.