NAIROBI, Kenya, Sept 18 – Climate-vulnerable countries that spend more than 10% of their national budgets servicing external debt should have their debts cancelled to free up resources for climate action, a new report by ActionAid and Development Finance International (DFI) has recommended.
The report, titled Debt Fuels the Climate Crisis: How the Finance Flows, says climate-vulnerable countries are spending nearly 25 times more on debt repayments than on climate action.
Debt servicing absorbs 65% of their combined government revenue, limiting their ability to implement even basic climate plans.
It found that 93.5% of the most climate-vulnerable countries are either in debt distress or at significant risk of debt distress.
According to the report, cancelling the debts of these countries could fund their basic, unconditional national climate plans six times over, or cover their combined spending on climate, health, education and social protection twice over.
ActionAid and DFI have called for mandatory rules on debt renegotiation and restructuring whenever debt burdens become unsustainable.
The organisations have also called for a universal agreement to automatically suspend debt servicing for at least five years in countries affected by major climate-related disasters that require urgent financing.
They said loans considered to have been lent or borrowed irresponsibly, based on United Nations Conference on Trade and Development (UNCTAD) principles, should be prioritised for cancellation.
“For too long, the debt and climate crises have been treated separately. This research exposes how tightly they are connected and quantifies the devastating cost involved,” said Arthur Larok, Secretary-General of ActionAid International.
“Yet this is a crisis we can fix. Action on debt can unlock countries’ own resources on a scale that few other climate measures can match, protecting lives now while creating space for a safer and fairer future,” Larok added.
The report comes as Kenya continues to face high debt repayments alongside the effects of climate change.
In the 2025/26 financial year, the National Treasury allocated Sh673.76 billion for external debt service, equivalent to approximately 15.6% of the total national budget.
China remains Kenya’s largest bilateral lender, accounting for roughly 10.8% of the country’s total external debt portfolio, which also includes loans from multilateral lenders such as the World Bank.
The report lists Kenya among countries with some of the largest debts owed to China.Other countries listed as having large debts to China include Pakistan, Angola, Sri Lanka, Ethiopia, Zambia, Bangladesh, Laos, Egypt, Nigeria, Ecuador, Cambodia, Belarus, Côte d’Ivoire, Cameroon, South Africa, Congo, Brazil, Mongolia and Argentina.
The report said some of the debt is linked to commodity-backed loans, where borrowing countries pledge future exports or profits from natural resources such as oil or critical minerals.
“As these deals lead to extraction of resources, increasing reports of human rights and environmental abuses associated with projects tied to Chinese mining companies are a serious concern,” the organisation stated.
ActionAid and DFI have urged countries facing debt crises to conduct public debt and climate audits to improve transparency and show how debt and climate pressures affect vulnerable groups, particularly women and girls.
The organisations have also called on developed countries to provide financial and technical support to developing countries to help them reduce greenhouse gas emissions and adapt to climate change. They said such climate finance should be provided through grants rather than loans.
