Global Debt Crisis Intensifies Amid Rising Climate Threats in Developing Nations

The Center for Economic and Policy Research (CEPR) has released a new report highlighting the growing interconnection between sovereign debt traps and climate crises in low- and middle-income countries. As of March 2026, 75 out of 119 developing nations evaluated by the International Monetary Fund (IMF) were either already experiencing a debt crisis or at high risk of one. The report underscores how these countries are forced to prioritize debt repayment over critical public services, climate resilience initiatives, and infrastructure development, which are essential for achieving Sustainable Development Goals.

The economic fallout from the ongoing Iran war is expected to exacerbate these challenges, with rising energy and food prices contributing to inflation, higher interest rates, and increased borrowing costs. According to the report, the current debt burden on developing nations is unsustainable and requires immediate systemic reforms, debt cancellation, and relief measures to prevent further instability. The IMF has also warned that a prolonged oil price hike could trigger a global recession in the most severe scenario, while even less drastic outcomes could lead to slower global growth and higher inflation.

The CEPR report reveals that interest payments on external public debt have surged from 1.4% of government revenue in 2010 to 3.5% in 2024, surpassing levels seen during the COVID-19 pandemic. This trend increases the risk of debt traps, where nations struggle to meet obligations while addressing urgent human and climate needs. Experts emphasize that the IMF’s policies often exacerbate these challenges, pushing countries into cycles of debt distress and limiting their ability to invest in essential services and climate resilience.

Co-authors of the report stress the need for urgent action, including a new issuance of Special Drawing Rights (SDRs) to provide liquidity and alleviate financial pressures on vulnerable nations. Without significant reforms, developing countries face an unending cycle of debt and climate crises, threatening global stability and progress toward sustainable development.