Introduction

The escalating debt crisis in the Global South is a structural crisis rooted in historical patterns of extraction and unequal financial architecture. Across Africa, Latin America, the Caribbean, the Middle East and parts of Asia, sovereign debt has reached levels that severely constrain fiscal autonomy. In 2024, the external debt of low- and middle-income countries (LMICs) approached an all-time high of US$8.9 trillion, with interest payments alone reaching a record US$415.4 billion. In 2024, LMICs paid US$205.1 billion more in principal and interest than they received in new loan disbursements. Consequently, many governments now allocate more resources to servicing debt than to health, education, or climate action.

The structural link between fossil fuels and sovereign debt

Fossil fuel dependence is a persistent macroeconomic vulnerability shaping sovereign risk. For fuel-importing countries, price volatility destabilises trade balances and widens fiscal deficits. For exporters, commodity cycles and stranded asset risks expose public budgets to long-term instability. Investment patterns are shifting away from fossil fuels, as solar and offshore wind are now 41 percent and 53 percent less expensive than fossil fuels respectively. Empirical modelling suggests that if Africa were to transition to a 100 percent renewable energy system by 2050, it could save between US$3 and US$5 trillion in net terms, or approximately US$150 billion per year.

Colombia: at a turning point to break the debt-fossil fuel cycle

Colombia is a fossil fuel–producing country whose transition is constrained by a structural debt–fossil fuel trap. In 2024, Colombia held US$265.5 billion in public debt, and the debt-to-GDP ratio rose from 32 percent in 2008 to 58 percent in 2025. In 2025, debt servicing absorbed 21 percent of the central government’s budget expenditure, while public spending on the energy transition amounted to only around US$3 billion. Despite these constraints, renewable energy—particularly solar and wind—expanded from 2 percent of the electricity matrix in 2022 to 15 percent by January 2026. The government has committed to a gradual phase-out of fossil fuels, including suspending new licences for exploration.

Egypt: fossil expansion and the erosion of energy sovereignty under structural debt and austerity

Egypt’s political economy reflects a deeply entrenched fossil fuel–debt trap. External debt surged from US$36.8 billion in 2010 to roughly US$156 billion in 2024, an increase of more than 320 percent. The draft FY 2025/26 budget allocates more than 65 percent of expenditure to debt service. To secure foreign currency, the state has accelerated oil and gas exploration, treating hydrocarbons as financial collateral. Projects such as the Benban Solar Park remain dominated by foreign investors and financed through dollar-denominated contracts that shift currency risk onto the state. Arrears to foreign oil companies reached US$7 billion at their peak, straining dollar reserves.

Guyana at the crossroads: navigating debt, oil wealth, climate vulnerability and the pursuit of a just energy transition

Guyana has rapidly become one of the world’s fastest-growing oil producers. While the public debt-to-GDP ratio fell to around one quarter of GDP by 2024 due to surging oil GDP, nominal public debt rose from US$2.2 billion in 2019 to nearly US$6 billion in 2024. Petroleum receipts reached an estimated US$1.6 billion in 2024, equivalent to 42 percent of total government revenue. However, Guyana is experiencing sea-level rise at six times the global average, with the capital city of Georgetown projected to face severe inundation risks by 2030. Only 3 percent of employment in the country has been generated by the fossil fuel industry.

Jordan: the limits of a just energy transition under debt, fuel-tax addiction, and take-or-pay fossil lock-in

Jordan’s public debt exceeds 90 percent of GDP, or 116 percent when including Social Security Investment Fund holdings. Debt servicing consumes nearly 40 percent of government revenues. The state has developed a structural reliance on taxes derived from fossil fuels and tobacco, which generate up to US$4.8 billion annually. Between 2014 and 2021, renewable energy rose from less than 0.7 percent to 26 percent of electricity generation. However, by 2024, the pace of decline in fuel consumption—driven by electric vehicles (EVs) which accounted for 71 percent of new car registrations—triggered fiscal anxiety, leading to the reintroduction of higher taxes on hybrid and EV cars.

Sri Lanka: energy transition goals amidst a debt-trap and climate crisis

Sri Lanka defaulted on its foreign debt payments in 2022. Its debt to GDP ratio peaked at 114 percent in 2022. The country faces an annual foreign debt repayment burden projected at 4 percent of GDP until 2027. In November 2025, Cyclone Ditwah devastated the island, inflicting damage equivalent to 4 percent of GDP and destroying 42 percent of transport, water, and energy systems. While the government has plans to be 70 percent renewable by 2030, public funding for climate and energy was less than 2 percent of government revenues in the 2026 budget. Fossil fuel imports remain the most expensive item on the country’s external accounts.

Policy recommendations

The report recommends that International Financial Institutions acknowledge and implement debt cancellation to address the escalating crisis. They should end all fossil fuel extraction finance and realign portfolios toward transition-enabling public goods. Global North governments are urged to pay a fair share of climate finance through grants rather than loans and stop blocking the reform of the global financial system. The United Nations should establish a binding mechanism on debt resolution and a global public debt registry. Global South governments are encouraged to commit to managed fossil fuel phase-out plans and mobilise national development banks to finance the green transition.