The Vicious Circle: Connections between the Debt Crisis and the Climate Crisis

Addressing vulnerability and promoting security
Jun 06, 2023 | Actionaid

A vicious cycle exists between the debt and climate crises, each reinforcing the other. The countries that are most vulnerable to the climate crisis are also facing a debt crisis – and the need to service external debt in foreign currency has accelerated the climate crisis. This Actionaid Policy Brief argues that two thirds of climate finance arrives in the form of loans that exacerbate the debt crisis, forcing countries to act in ways that entrench the climate crisis. The real value of these loans is often overstated and yet, many of the proposals presently being considered for more climate finance seem to involve even more loans rather than fairer and more sustainable alternatives. There is a need for a new UN body with a clear mandate to develop new global tax rules informed by and with a positive impact on the climate crisis. Rather than just taxing to reduce emissions, tax rules could be designed to redistribute resources to those countries that are least responsible for, but most affected by, the climate crisis.

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