To Phase Out Fossil Fuels, Developing Countries Need Exit Route From “Debt Trap”

Why It Matters

Without addressing the debt burden, the Global South cannot finance the energy transition, jeopardizing global climate targets and deepening economic inequality.

Key Takeaways

• Global South debt hit $8.9 trillion, limiting climate finance.
• Fossil fuel revenues fund debt service, creating a fiscal lock‑in.
• Colombia’s $265 billion debt hampers its 7‑10% GDP transition cost.
• Jordan uses 40% of revenue for debt, stalling renewables.
• Report calls for debt cancellation and green financing to unlock transition.

Pulse Analysis

The debt dilemma facing low‑ and middle‑income economies is more than a balance‑sheet issue; it is a structural barrier to decarbonisation. Since 2010, external obligations have more than doubled, and interest outlays reached $415 billion in 2024—2.4 times the level a decade earlier. Those payments divert scarce fiscal resources away from climate‑finance mechanisms, forcing governments to rely on carbon‑intensive revenue streams. In this context, the "feedback loop" described by the Fossil Fuel Treaty Initiative becomes a self‑reinforcing trap that stalls renewable‑energy deployment and undermines climate‑adaptation budgets.

Country case studies illustrate how the debt trap materialises on the ground. Colombia, hosting the transition conference, has frozen new oil licences and drafted an energy‑transition roadmap that would cost 7‑10% of its GDP, yet its $265 billion public debt obliges it to channel fossil‑fuel earnings into debt service. Jordan, with public debt equivalent to 90% of GDP, allocated roughly 40% of state revenue to debt repayments in 2024, prompting a pause on new solar and wind licences despite a rapid rise in renewable capacity. Similar fiscal constraints are evident in Egypt and other IMF‑linked economies, where austerity clauses limit public‑investment flexibility.

The report’s policy blueprint centres on breaking the debt‑fuel nexus. It urges creditor nations and multilateral institutions to pursue targeted debt cancellation and to replace loan‑based financing with grants or concessional capital for clean‑energy projects. Establishing a binding UN mechanism for debt resolution and prohibiting new international finance for fossil‑fuel expansion are also recommended. By unlocking fiscal space, developing countries could accelerate green industrialisation, meet their climate‑finance pledges, and contribute meaningfully to the global net‑zero agenda. The urgency is clear: without a coordinated debt‑relief strategy, the world risks missing critical emissions‑reduction milestones while deepening socioeconomic inequities.