Ambitious and effective climate action at the national, regional and international levels depends on the availability of adequate and predictable financing. However, developing countries are suffering from debt distress at the same time as dealing with higher risks and relative costs of climate impacts. Less fiscal space means less capacity to respond to disasters, adapt to the impacts of climate change or invest in resilience and low carbon development pathways, hence perpetuating a vicious cycle that forecloses both debt sustainability and climate action.

In the current global environment of a growing financial crisis, rising interest rates, and a strengthening dollar, developing countries are facing weakening currencies coupled with heavy debt servicing repayments which are pushing them to the brink of insolvency.  In the absence of any multilateral mechanism to respond to debt distress, policy solutions have thus far been piecemeal and ineffective. This prolongs economic crisis and prevents governments from achieving collective climate and development goals.

At the same time, the current level of climate finance as well as the nature of instruments available are inadequate to secure adaptation and mitigation strategies or deal with the ongoing climate challenges facing developing countries. Despite efforts made by many developed countries, the USD 100 billion annual climate finance commitment is yet to be fulfilled. COP27 is an opportunity to ensure that pledges and commitments, including those related to climate finance, are fulfilled and implemented. It is also an opportunity to test innovative financing instruments that take into consideration the developmental ambition, special circumstances and respective capabilities of developing countries.

What is the relationship between climate change and increasing debt distress?

What can help countries both address unsustainable debt burdens and facilitate climate resilient development?

What are the innovative tools and instruments that can be implemented to provide climate finance at scale without exacerbating debt?

What are the major barriers to action?

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