1 July 2025, Sevilla, Spain – A debt review just released by a bloc of 74 finance ministers revealed climate vulnerable countries are spending four times more on debt service payments than their required climate investment needs. The report’s third edition was published by the V20 Group of Finance Ministers, a climate-oriented association of economic managers formed two months before the Paris Agreement was gaveled.  

Representing 22 percent of the world’s population, the V20 group of countries are estimated to have already suffered a 20 percent loss of gross domestic product (GDP) due to the impacts of climate change. This is further compounded by heavy debt burdens, declining official development assistance (ODA), and prohibitively high costs of capital which inhibit their ability to mobilize resources for global warming resilience and economic growth. 

The findings of the V20 Debt Review demonstrates the inseparable link between the climate crisis and the debt crisis. As climate disasters worsen, they trigger and fuel what the V20 called “the climate sovereign debt doom loop.” According to the group, countries vulnerable to climate change that are already heavily indebted are forced to borrow more for climate-related disaster recovery. The condition further compounds the financial pain and constrains spending on essential services such as healthcare, education, infrastructure and climate-resilience. 

According to the V20 Debt Review, the total sovereign debt stock of V20 countries was USD $1.01 trillion in 2023, with multilateral development banks (MDBs) making up the largest creditor class at 40 per cent, followed by private creditors at 32 percent, Paris Club bilateral creditors at 10 percent, China at 8 percent, other bilateral creditors at 5 percent, and IMF credit at 5 percent.

While private creditors were identified as the second largest creditor class, demonstrating improved investor confidence, the report warned increased dependence on private creditors exposes V20 countries to short-term, high-cost debt at a time of global uncertainty and rising interest rates. 

The report also revealed the total external sovereign debt service payments of V20 countries have risen three-fold between 2014 and 2024, from around USD $47 billion to $131 billion. Over the next six years, between 2025 and 2031, debt service payments are expected to rise to USD $746 billion, a figure roughly four times higher than the estimated climate investment needs of vulnerable economies. 

Mounting debt burdens generate heavy pressure on national budgets and public spending, with 16 countries spending today over 20 percent of government revenue on debt service payments alone. Between 2020 and 2022, 12 V20 countries spent more on interest payments than on education. Sixteen countries also spent more on interest payments than on health, while eight countries spent more on interest payments than on health and education combined.

The rising debt burden of climate vulnerable countries are reflected in debt ratings from the IMF/World Bank Low-Income Countries Debt Sustainability Framework. According to the register, 22 out of 45 member countries have risk ratings rated as high, in distress, or debt distress categories. The remaining 23 countries of the membership are rated as moderate or at low risk of debt distress. 

Recent estimates suggest V20 countries will require USD $490 billion in climate finance. In order to alleviate pressure from heavy debt burdens and create needed fiscal space, the report suggests a 40-year repayment period instead of a five-year period, with a lower interest rate of 1.35% consistent with the International Development Association’s rate. V20 finance ministers said this can lower the V20’s debt obligation to USD $293 billion between 2025 to 2031, representing a net value reduction of 37 percent. In other words, it is USD $454 billion less than what V20 countries are currently scheduled to pay to break the doom loop and free up space for survival and resilience. 

Given existing challenges, leaders of the V20 Troika, comprising the finance chiefs of Barbados and Bangladesh – ministers Ryan Straughn and Dr. Salehuddin Ahmed – stressed the V20 continues to advocate for effective and rapid debt solutions. 

“Decisive action needs to be taken in strengthening debt relief mechanisms for vulnerable countries by enhancing concessional financing, promoting debt pause clauses, scaling debt-for-nature and debt-for-climate swaps, and supporting state-contingent debt instruments which provide fiscal relief during crises,” they said. 

They further noted critical political moments such as the Fourth International Conference on Financing for Development (FfD4) and Jubilee 2025 as opportunities for the V20 group to strengthen global debt advocacy. The FfD4, taking place at the end of June is a critical moment to reshape the global policy framework for development finance over the next decade. Meanwhile, the Jubilee 2025 debt campaign calls for the debts of climate vulnerable countries to be forgiven and for the creation of a multinational mechanism for the resolution of sovereign debt crises.

Further opportunities to elevate debt solutions include the Circle of Finance Ministers and the Baku to Belém Roadmap, which seeks to boost the current USD $300 billion climate finance goal to USD $1.3 trillion by 2035. However, as the V20 Debt Review stressed, speed is vitaland accelerating climate action requires urgent reforms to the current debt architecture.