Climate-vulnerable countries across the Global South are facing a vicious climate-public debt cycle. As the world heats up, they will suffer most. Central banks and financial regulators will exacerbate this problem unless they adopt a transformative ‘double materiality’ approach that shapes financial markets in support of a just transition.
In the past ten years, the portion of public debt owed to private creditors has risen across all regions, accounting for 62% of developing countries’ total external public debt in 2021. In 2022, global public debt soared to an unprecedented $92 trillion, with developing countries accounting for nearly 30%, with China, India, and Brazil accounting for roughly 70% of that share.
When Global South countries borrow money, they’re forced to pay much higher interest rates compared to countries from the Global North, – and this is on top of the additional costs of exchange rate fluctuations. Countries in Africa borrow on average at rates that are four times higher than those of the United States, and even eight times higher than