Rich countries force poor nations to rely on fossil fuels: What a new report says

Subject: Economy

Section: Reports

Context:

Poor countries with heavy debts have been forced to continue to rely on fossil fuels for generating revenue to return the loans taken from richer countries and private lenders to meet various economic exigencies like the pandemic three years ago, a new report said.

Details of the Report:

These countries, mostly in the global south, may find it impossible to phase out fossil fuels and transition to renewable energy as revenues from fossil fuel projects “are often overinflated and require huge investments to reach expected returns, leading to further debt.
Report name: The Debt-Fossil Fuel Trap
Published by: The anti-debt campaigners Debt Justice and partners in affected countries.

Understanding the debt-Fossil fuel Trap:

The global south countries are increasingly being burdened by enormous debts in recent years.
- Global South is a term used for developing, less developing and underdeveloped countries, located in Africa, Latin America, and Asia.
Their external debt payments have gone up by 150% between 2011 and 2023, reaching their highest levels in 25 years.
54 countries are in a debt crisis — they had to cut their public sending budgets during the pandemic to repay the loans.
The extreme weather events force these countries to borrow more money as they lack adequate finances and resources for adaptation, mitigation and tackling loss and damage.
- Example: Dominica’s debt as a percentage of GDP rose from 68% to 78% after Hurricane Maria hit the island in 2017.
To repay the debts, these countries extract more fossil fuels.
- Example: Argentina is supporting fracking projects in the Vaca Muerta oil and gas field in Northern Patagonia.

Rich countries, IMF and World Bank keep global south’s fossil fuel projects running

The richer countries and multilateral and bilateral lenders have financed fossil fuel projects, often through loans, adding to debt burdens and keeping countries locked in fossil fuel production.
One of these loan contracts is: Resource based loans (RBLs).
- In RBLs, repayment is either made directly in natural resources (in kind) such as oil or minerals, or from a resource-related future income stream; or repayment is guaranteed by a resource-related income stream, or where a natural resource asset serves as collateral.
- Example: Surinam after defaulting on its debt in 2020 and 2021, negotiated a deal in which creditors would get the right to 30% of Suriname’s oil revenue until 2050.

Ending the high debt burden:

Clean energy, wealthy governments and institutions must implement ambitious debt cancellation for all countries that need it, across all creditors, free from economic conditions.
They should also stop accepting repayments made through fossil fuel projects’ revenue.
Bilateral and multilateral finance should be aligned with a 1.5 degree warming scenario and fair share calculations, and not be used to finance fossil fuels.