Creditors and Credit Rating Agencies Want More Unjust Debt and False Solutions for the Climate

In April, the report “Healthy Debt on a Healthy Planet: Towards a virtuous circle of sovereign debt, nature and climate resilience” was published, offering recommendations on how to assist Global South countries in achieving fiscally and environmentally sustainable debt. Sponsored by Colombia, Kenya, France, and Germany, the report was supervised by Moritz Kraemer, former Global Chief Ratings Officer of Standard and Poor’s. It is intended to advise the IMF, World Bank, Multilateral Development Banks (MDBs), borrower and creditor countries, as well as credit ratings agencies. 

I was pleased to read that the report highlighted the need for major investments in Global South countries to address climate change and biodiversity loss, while at the same time debt pressures drain their resources. It warns of a ‘vicious circle’ where debt, climate, and nature crises reinforce each other, stressing urgent debt reforms. But the proposed solutions to the vicious circle aren’t real solutions. They stay rooted in the same neoliberal capitalist framework of maximising profits and believing that marketisation of nature and climate will unlock the investments needed by the Global South. 

Debt Assessment Reforms: Ignoring Local Mitigation and Adaptation Needs for Profit

The report says institutions like the IMF and World Bank should better account for climate and nature risks—such as floods, droughts, or deforestation—and the long-term benefits of climate and biodiversity action when assessing a country’s economy and borrowing capacity, including through tools like Debt Sustainability Frameworks. Incorporating these risks and highlighting the cost savings of early mitigation and adaptation seems like a logical step, as worsening environmental crises heavily impact the Global Souths’ ability to borrow—it’s shocking that this isn’t incorporated already. However, debt assessments must also consider social dimensions—such as human rights, inequality and how debt and fiscal policies impact different groups—which are currently overlooked by such tools. But most importantly, since Global South countries are already the most affected by climate change and biodiversity loss, investments in mitigation and adaptation must reflect local needs and priorities. Yet, the report aims to “incentivize more nature- and climate-related investments that can support sustained and resilient growth” (p.28). Under this framing, only projects promising the highest ‘growth prospects’—those expected to generate the most profit—are prioritized, regardless of their relevance to local communities or ecosystems. 

‘Green’ Debt Restructuring : Blackmailing Along Colonial Lines, Shifted Responsibilities & Nationalist Narratives

Another recommendation is extra debt relief—but only if countries adopt binding climate and nature measures expected to boost economic growth, meaning they must be profitable. This idea, known as "greening debt restructuring," is presented as a win-win. But in reality, it offers only partial debt relief, conditional to a long list of “growth-enhancing” actions approved by the IMF and benefitting creditors. It’s essentially blackmail and another form of green colonialism, reinforcing IMF control instead of letting countries shape recovery plans suited to their people and ecosystems. 

For countries not yet in full debt crisis but facing high repayments, the report proposes “green debt refinancing”—swapping old loans for new ones with lower-interest rates, but only if countries commit to creditor-approved climate and nature investments. As such, it’s just more loans with strings attached—not real debt relief—and no plan for dealing with private creditors, leaving the Global South to figure that out alone. The report offers three reasons why ‘greening’ debt should be done: one being that adaptation investments can reduce future losses and costs, which is a valid point. However, the report shifts this into an argument for profit, focusing only on creditworthiness: “Targeted mitigation efforts can have strong immediate growth impacts that also boost creditworthiness” (p.39). As such, it’s more about a country's ability to repay loans than ensuring that mitigation efforts are tailored to local needs as already raised under Debt Assessment Reforms. 

Shifting the Blame and Costs onto the Global South

The report’s second argument for green debt restructuring is outrageous! It ignores both historical and ongoing responsibility for the climate and biodiversity crises, flipping the narrative to claim that the Global South must step up now—because their supposed inaction would be harming citizens in the Global North and threatening creditor profits. This quote sums it up:

“EMDCs [Emerging markets and developing countries] must take stronger environmental action if the world is to have any hope of halting biodiversity loss or curtailing global warming. If they do not or cannot act, the costs will be borne globally – including by creditor countries and private creditors. More frequent and severe wildfires, floods and heatwaves are already harming the citizens of creditor countries and damaging the infrastructure assets of private creditors. [...] It can be more cost-effective to support EMDCs to reduce their emissions than to achieve comparable cuts at home, given that the low-hanging fruit have already been picked in some advanced economies, land and labor costs are lower in EMDCs, and it can be cheaper to build low-emission infrastructure than to retrofit or refurbish high-carbon systems.” (p.40)

The report also falsely claims that Global South countries (excluding China) were responsible for 41% of global emissions in 2022—using this to argue that they must step up their climate action. Not only is this number not traceable in the source they referenced, it also hides the responsibility of the Global North in causing climate breakdown. Research shows that Global North countries have been responsible for 92% of excess global carbon emissions transgressing planetary boundaries (see studies from 2020 and 2023). It’s perverse how the report erases the North’s historical and present responsibility—especially when the report itself admits elsewhere that the Global South is most affected by climate change despite contributing the least:

“Yet these countries [least developed countries and small island developing states] account for only a tiny fraction of the consumption and emissions driving nature loss and climate change.” (p.7)

Their attempt to shift both blame and costs away from the most polluting countries is horrendous and serves as a justification for inaction in the Global North!

Upholding Nationalistic ‘us-first’ Mentality

The third argument used for ‘greening’ debt reveals clearly where the report’s priorities lie: it’s not about what the global South needs (grants and unconditional debt cancellation), but what’s politically convenient for the Global North, especially also with several rich nations pulling back from international obligations:

“[...] fiscal pressures and political backlash mean it is increasingly difficult for political leaders [aka the Global North] to justify such development assistance. Targeted debt relief linked to domestic [aka Global North] interests such as climate change mitigation may be more politically feasible for creditor countries confronted with tight budgets themselves. (p.40)

The logic here is simple: with an increasing ‘us first’ mentality, many Global North governments reduce their efforts of tackling the climate crisis globally (or retreat from it altogether such as the US).

The report offers such countries the chance to frame the tiny continued support for the Global South as a matter of national interest: the Global South doing more climate action, while rich countries can do less—and still pat themselves on the back for ‘helping’.

New Loans with Strings Attached

They also recommend that Multilateral Development Banks (MDBs) offer a new type of loan for Global South countries that no longer qualify for shrinking Official Development Assistance (ODA)—funds from Global North countries to the poorest nations, typically grants or highly concessional loans. Unlike concessional loans, which often have zero or very low interest and may include partial debt relief, these new loans would carry terms closer to the market, only with slightly lower interest rates, longer maturity (payback rates of 30-40 years) and grace periods (payment delay). Though somewhat cheaper, they still require full repayment with interest. These new loans target countries that fall between categories—not poor enough for ODA, but still burdened by high borrowing costs—such as Indonesia, the Philippines, Brazil, South Africa, and some Small Island Developing States. The catch? These loans come with conditions. 

Funding is only available for climate- and nature-related investments deemed to “enhance resilience and boost growth” (p.53). So once again, support is tied to creditor-approved definitions of ‘good’ investments. While this might offer slightly better terms, it does nothing to address the deeper power imbalances in the global financial system—especially when even the report admits MDBs aren’t the main lenders to the Global South and are unlikely to receive more funding from the Global North. So why focus on this new loan type, while letting more powerful creditors off the hook?

Countries in Crisis Need Breathing Room, not More Debt Piling up for Later

Another recommendation is for lenders (like the IMF, the World Bank, and MDBs) to add special clauses to loan contracts—such as maturity extensions and interest capitalization. These clauses would automatically allow countries to pause or delay payments when hit by big shocks or being under stress—without being punished or needing to ask for special treatment. 

The maturity extension clause allows a country to extend the repayment period of its loan by two years at a predefined interest rate, with no debt reduction or cancellation. Here are the problems with that: 

1. Two years is hardly enough time for a country to recover from a major shock, especially when crises like extreme weather events are becoming more frequent. What happens after those two years are up, especially if the country is still struggling? The report doesn’t get into that. 

2. It doesn’t account for overlapping shocks, such as food price hikes, tariffs, and natural disasters happening at the same time. 

3. There shouldn’t be any interest charged during this period, as the country is already in crisis. Plus, the interest rate isn’t even clearly defined in the proposal which just adds more uncertainty and potential hardship. 

Then there’s the interest capitalization clause. This one basically says: "Okay, you don’t have to pay interest right now—but we’ll add it to your loan and you have to pay it back later." So the total amount owed actually goes up and the country ends up paying interest on interest. But during a crisis, a country shouldn’t be paying anything—no interest and no debt repayments. Once again, this isn’t real help. It just quietly increases the debt burden. 

Yes, it could be helpful to have special clauses that let countries pause or delay payments—but not under these kinds of conditions. Our alternative proposal? Suspend all debt repayments, with no interest and no fixed time limit, debt should be canceled or at least significantly reduced. 

Debt Swaps: Minimal Debt Relief and Lost Sovereignty

Debt swaps are promoted as a way for countries to redirect debt payments into environmental projects, like forest or marine protection, in exchange for better loan conditions or partial relief. But even the report admits these swaps have done little—reducing debt levels seven times less than restructuring—because they only apply to a small slice of debt, so-called expensive debt. Due to that, swaps offer only limited help and can even make future restructurings harder by locking in special creditor deals and creating complex, costly arrangements. Each swap must be negotiated case by case, and while the report suggests a standard framework for this, it doesn’t fix the core issue: they touch only a small portion of debt. Worse, tying relief to environmental conditions turns nature into a bargaining chip, shifting control of forests, oceans, and land to external creditors. Swaps prioritize lenders, exclude local communities, threaten human rights, and let wealthy polluters greenwash their image. 

Bottom line: Debt swaps are no real solution. They offer minimal relief, erode national sovereignty, turn nature into a commodity, and let major polluters dodge real responsibility—shifting focus away from true climate and debt justice.

Sustainability-linked Finance: Lenders Dictating the Terms

Sustainability-linked loans or bonds change interest rates based on how well a country meets certain climate or nature targets, called Key Performance Indicators (KPIs). If a country hits the targets, it pays less interest. If it doesn’t, it pays more. The report doesn’t say who should set these KPIs, but in reality, it’s usually lenders—private banks, asset managers like BlackRock and Vanguard, and credit rating agencies—who decide the terms. And for countries that urgently need money, there’s not much room to negotiate. The process is unclear and shaped around what investors want, not what people or the planet need. It puts the same financial players that helped create the debt crisis in charge of deciding what counts as “sustainable.”

Misusing ‘aid’ Funds & Savings from Climate Resilience Projects: More Profit for Private Investors

A new fund called the Finance Facility against Climate Change (F2C2) is proposed as another solution to raise private money for climate action. It would sell green bonds—climate-linked loans—backed by future aid commitments (ODA) from rich countries, to lend that money to the Global South. They claim it could raise $1 trillion in 10 years, but that’s far below what’s actually needed: at least over $1 trillion per year—or more realistically $5 trillion annually. And this should come as grants, not loans! If rich countries paid their climate debt (even just since 1992), they’d owe $107 trillion—70 times what the South owes today. 

Backing these F2C2 bonds with future ODA funds (taxpayers money!) is a serious red flag  because: 

1. ODA budgets are shrinking in many Global North countries as nationalism rises—so counting on future aid flows is speculative at best. 

2. Private investors will get paid no matter what. If things go wrong, it’s Global North governments—and ultimately taxpayers—who will pay for losses. 

3.  ‘Aid’ money is meant to fight poverty, not subsidise profits. Using ODA funds to attract private investors means it won’t go where it’s most needed—like healthcare, clean water, education, or small-scale farming. In the past, this kind of investing has done little for poverty reduction or climate resilience. Instead, it’s gone to projects that generate profits—not public benefits. This proposal opens the door for using ‘aid’ money to shield private investors from any losses. F2C2 funds could even go directly to private companies—not just governments—if they put in some of their own money. 

Equity-like finance is another recommendation for protecting private creditors. Countries in the Global South would borrow money from development banks, and instead of repaying the usual way, they pay based on how much the project saves the country over time—like avoided flood damage or crop loss. If it saves a lot, lenders get more; if not, they get less or nothing. While this shifts some risk to the lender, it also promises big profits if the project succeeds. Initially these loans would be backed by public money from Global North governments (taxpayers money). But once they prove ‘successful’—meaning profitable— private investors are brought in to cash out. This proposal is yet another way to turn crises into profit. It’s grotesque to suggest that profits from climate resilience investments in some of the world’s most vulnerable countries should flow to private investors—mostly based in the Global North. These savings should stay in the Global South, where they’re urgently needed for healthcare, education, and further mitigation and adaptation efforts.

It’s on You: Leaving Global South Populations to Pay

Earlier chapters of the report say the Global South needs more international and private finance to deal with climate change, biodiversity loss, and debt. But the last chapter claims most of the money should actually come from the Global South itself:

“60% of the finance required for sustainable development in EMDCs will have to come from domestic public and private sources” (p.71) 

How convenient. Never mind that much public money already goes toward debt repayments. The suggested solution? Raise taxes and cut harmful subsidies. Especially the latter sounds reasonable in theory—but in practice, both usually means putting more financial pressure on ordinary people. The report recommends measures like carbon pricing, ignoring the realities many Global South countries face: large informal economies, limited taxpayer bases due to poverty, tax exemptions for foreign investors, corporate and elite tax avoidance, and unfair trade rules. Yet the report frames this as a matter of better capacity building and ‘responsible’ debt management—as if it’s just poor governance keeping countries from fixing their finances. 

So who ends up paying? Regular people who are already struggling. And the idea that this new revenue will automatically go toward health or education falls flat. In reality, when debt burdens are high, public services are usually the first to be cut to keep up with repayments. So it’s more taxes, fewer services. A carbon pricing tax might help reduce emissions and raise funds, but it also risks hitting small businesses and low-income families hardest—especially in countries where fossil fuels are still essential for basic survival. The report admits the need to protect the poorest, but still expects the Global South  to fund those protections itself. And yes, phasing out harmful subsidies matters—but the report overlooks that Global North countries are responsible for most of these harmful subsidies globally. 

The report admits that managing debt has become more complex—especially now with climate and nature risks added to the mix. Smaller Global South countries are at a clear disadvantage here: they lack data, staff, and resources compared to wealthier nations and private creditors. During debt restructuring, this power imbalance becomes glaring. Creditors come with full teams of experts, while borrowing countries scramble to understand complex offers with limited capacity. Hiring advisors is costly, and much of the needed data is locked behind paywalls. The report proposes a ‘one-stop shop’ for technical help, which is a good idea. But even that doesn’t address the root problem: a financial system stacked against the Global South.

Real Solutions Now! A UN Framework Convention on Sovereign Debt

In the end, the report offers a series of so-called ‘solutions’ that fail to address the deeper issue: the urgent need to reform the global financial system. We need a system that stops prioritizing profit, delivers debt cancellation and grants—not more loans—to countries in the Global South, who have contributed the least to the climate, biodiversity, and debt crises. 

It’s time to hold the Global North, its institutions, and especially the private sector accountable. They must finally be made to pay their debts to the Global South! While private companies continue to be bailed out and reap massive profits, the communities they harm are left to cover the costs. It’s time they pay—for the destruction, the appropriation, and the ongoing injustices.

With the upcoming UN Financing for Development Conference in Sevilla—and the proposals for a UN Framework convention on sovereign debt from African Nations and from civil society—we have a real chance to shift debt decision-making from the IMF to a truly representative UN body. 

The Global North is opposing this, instead promoting fake ‘solutions’ like those in this report. We must mobilize now—to expose the hypocrisy of Global North governments and institutions like the EU, which continue to support proposals designed to exploit and control the Global South.