The world’s poorest countries are reeling from debt made worse by exchange rate fluctuations and worsening climate shocks, a new study has found, as officials considered ways to ease the burden at the Spring Meetings of the International Monetary Fund (IMF) and the World Bank this week.
On Friday, the International Institute for Environment and Development (IIED) issued new research showing that Least Developed Countries (LDCs) and Small Island Developing States (SIDS) have been required to take out loans for their growth and development in foreign currencies – usually US dollars – forcing them to spend billions of dollars every year repaying sovereign debt.
These poorer countries become vulnerable to currency volatility – and when extreme weather like powerful storms batters their fragile economies, their debt burden grows even bigger.
“With every climate-driven disaster, their requirement to borrow more money increases while their currency simultaneously devalues,” said Ritu Bharadwaj, IIED principal researcher and the paper’s lead author. Moreover, because the global economy is largely structured around the US dollar, “these countries are taking on all the risk associated with currency fluctuations,” she added.
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IIED researchers examined how debt repayments and currency volatility affected 13 representative countries, and cross-referenced that data with climate modelling, showing a clear link between climate disasters and currency depreciation – which in turn leads to spiralling debt.
To solve the problem, they proposed that international financial institutions offer new loans in local currencies, while debtor nations should be allowed to swap existing debt for investments in climate, nature or social protection.
“What we’re suggesting is that creditors should take on some of that risk as part of reforms to make the global financial system fairer,” said IIED’s Bharadwaj.
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The research – which focused on 13 countries across Africa, Asia and the Americas, using data from 1991 to 2022 – showed that over that 31-year period, the average value of SIDS currencies fell against the US dollar by around 265% and that of LDCs by 366%. As a result, the local currency cost of repaying their debt jumped.
Using the 2022 value of the US dollar as a baseline, the cumulative extra cost for SIDS over those three decades was $10.25 billion, the equivalent of 3% of their GDP per year. For LDCs, the cumulative value of extra repayments was $9.98 billion, equal to 6.6% of GDP.
These huge sums vastly outweigh the amounts SIDS and LDCs can spend on curbing their planet-heating emissions and adapting to climate change, and paying back debt diverts scarce resources from other day-to-day spending on healthcare and education, the study found.
Gaston Browne, prime minister of Antigua and Barbuda, said the analysis provides an “urgent and credible foundation for action”, adding that “the paper makes clear that the hidden cost of repaying debt in foreign currencies, especially during times of crisis, is a silent drain on our economies”.
“For every dollar lost to currency depreciation, there is a clinic not built, a road not repaired, a social protection programme left underfunded,” he said.
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Ghana’s fossil fuel trap
Separately, another report from the Centre for Research on Multinational Corporations (SOMO) and ActionAid Ghana argued that fossil fuel companies have profited from World Bank support for multi-billion-dollar oil and gas projects in Ghana, while its people continue to suffer from power outages, unaffordable electricity and rising public debt.
In the report published on Thursday, the researchers said $2 billion in World Bank funding for oil and gas projects had led to surplus supplies and mainly benefited the private companies running the projects.
Oil and gas projects backed by big multinationals – including the Sankofa gas deal, Jubilee oil and gas project and the West African Gas Pipeline – have over-promised but under-performed, the report said. As a result, they have failed to solve Ghana’s energy and power crisis, causing the country to spend more on fuel imports or buying up costly unused gas.
Joseph Wilde-Ramsing, acting executive director of SOMO, said: “Ghanaians are paying high prices for electricity they can’t afford, while foreign oil and gas companies reap guaranteed profits.” He described the situation as one of “utter negligence, exploitation and a climate disaster rolled into one”.
“Ghana has been compelled to enter into energy agreements that are unaffordable and unsustainable,” said John Nkaw, country director of ActionAid Ghana. “These contracts seem to guarantee profits for oil giants while our government struggles to pay off debts.”
According to the World Bank, which provides guarantees for such projects in the host country to leverage capital investment, the Sankofa Gas Project – approved by the bank in 2015 – had the objective of increasing the availability of natural gas for “clean power generation”.
Multinational energy firms Eni and Vitol served as private sponsors alongside the Ghana National Petroleum Corporation, while the World Bank provided $700 million in guarantees to reduce financial and political risks.
Makhtar Diop, then World Bank Vice President for Africa, said at the time that the guarantee was the largest provided by the bank, and would allow the country to leverage up to $8 billion in foreign direct investment, thereby transforming electricity, enabling lower-carbon power generation, increasing electricity access and reducing oil imports.
The World Bank also provided guarantees to cover any risk eventualities for the West African Gas Pipeline, including $50 million from its International Development Association, $75 million from its Multilateral Investment Guarantee Agency, and $125 million from the Steadfast Insurance Company. Those political risk guarantees helped the project get to financial closure, with the bank saying the project would not have gone forward without them.
The World Bank was contacted for comment but had not responded by the time of publication.
Global finance system reform
Speaking to journalists this week at the IMF/World Bank Spring Meetings in Washington DC, Ceyla Pazarbasioglu, the IMF’s strategy chief, agreed there is an urgent need to address the high debt service burden facing many countries, adding that the situation is becoming more acute in the current global economic environment, Reuters reported.
Noting the growing challenges facing vulnerable low- and middle-income countries, Kristalina Georgieva, the IMF’s managing director, said the global lender must be more active in debt restructuring processes.
Commenting on the IIED’s research, Prime Minister Browne of Antigua and Barbuda said that, as SIDS face worsening climate shocks, deepening debt burdens, and volatile currency markets, the findings provide evidence to advance reforms that are “fair, feasible, and necessary”.
Browne called for change to the current global financial architecture, which he said places an unfair burden on the most vulnerable and creates structural barriers to investment in climate resilience, adaptation and long-term development. “As Co-Chair of the Debt Sustainability Support Service (DSSS), I am committed to taking this issue to the highest levels of international decision-making,” he added.
Under Ghana’s ongoing debt restructuring, SOMO and ActionAid are advocating for an independent process that assesses the historical and current levels of fossil fuel-related debt affecting Ghana’s finances, followed by the cancellation of that debt.
They called for greater transparency and fairness in global energy investments, adding that all energy contracts that shift financial risk onto countries should be reassessed.
“As the US calls for the World Bank to continue investing in fossil fuels, our latest report is a stark warning on what the World Bank’s fossil fuel investment can do to a country’s economy and energy sector,” SOMO’s Wilde-Ramsing said.
The post Climate shocks and volatile currencies hike debt burden for poor countries appeared first on Climate Home News.
Climate shocks and volatile currencies hike debt burden for poor countries
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The planet is heating up more quickly than ever before.
For decades, greenhouse gas emissions caused by human activity have been building up in the atmosphere and trapping ever-higher levels of heat.
The resulting asymmetry between incoming solar energy and energy radiated back out into space – known as “Earth’s energy imbalance” – provides a direct measure of the extent to which humans are disrupting the Earth’s climate system.
This imbalance is growing and in 2025 its 10-year average reached a record high, indicating that global temperatures could increase at even higher rates in the future.
This is among the headline findings of the latest “indicators of global climate change” (IGCC) report, published in the journal Earth System Science Data, which tracks changes in the climate system on an annual basis.
The report, now in its fourth iteration, has been produced by dozens of scientists from around the world.
Its findings are designed to fill the gap between Intergovernmental Panel on Climate Change (IPCC) science reports, which are published every 5-7 years.
In this article, we unpack the IGCC report, which explores how human activity is driving a growing energy imbalance and why monitoring systems to track global climate are so crucial.
(For more on previous IGCC reports, see Carbon Brief’s coverage in 2023, 2024 and 2025.)
Greenhouse gas emissions remain at an all-time high
Global greenhouse gas emissions are continuing to increase, mostly as a result of the use of fossil fuels. However, deforestation, agriculture and industrial processes also play an important role.
Over the most recent decade (2015-24), emissions stood at the equivalent of 54.6bn tonnes of carbon dioxide equivalent (GtCO2e) per year. In 2024, the most recent year for which we have complete data, emissions reached 56.8GtCO2e.
As the chart below shows, these emissions have pushed up atmospheric levels of CO2, methane and nitrous oxide. In 2025, concentrations of these gases reached 425.6 parts per million (ppm), 1936.3 parts per billion (ppb) and 339.4ppb, respectively.
This represents a rise of 3.8%, 3.8% and 2.2%, respectively, since the 2019 levels reported in the IPCC’s sixth assessment report (AR6).
At the same time, declines in emissions of aerosols such as sulphur dioxide, partly as a result of efforts to tackle air pollution, are increasing the Earth’s energy imbalance. This is because aerosols have a cooling effect on the Earth’s climate, counteracting warming from CO2 and other greenhouse gas emissions.
(Tackling sulphur dioxide, alongside other particulate emissions, remains critical because the immediate health and environmental damage they cause far outweighs their short-term cooling effect on the climate.)
The Earth’s energy imbalance is rising rapidly
The Earth’s energy imbalance has long been recognised as a key indicator of how the climate is being affected by human activities.
However, it is only in the last few decades that scientists have been able to record temperature changes deep enough in the ocean to accurately quantify it.
Earth’s energy imbalance measures how quickly excess heat is accumulating in every part of the Earth system, primarily in the ocean, but also in land, ice and atmosphere.
Through this accumulation of heat, the energy imbalance influences the rate of sea level rise and ice melt across the world, as well as increasing the frequency and intensity of extreme weather events, such as storms, floods and droughts.
Without human influence, the Earth’s energy imbalance would be close to zero.
But, as greenhouse gas emissions have built up in the atmosphere, the imbalance has been growing since the 1970s. Recent increases to Earth’s energy imbalance have outpaced those projections made by climate models — indicating the planet could see more warming than expected in the future.
As the right-hand chart below shows, the imbalance is now at a record high, having more than doubled over the past two decades.
It has increased by around 40% since 2019, from an average 0.79 watts per square metre (Wm2) over 2006-18, according to IPCC AR6, to 1.12Wm2 over 2013-25.
The left-hand chart shows how heat is accumulating in the ocean (blues), ice (grey), land (orange) and atmosphere (purple).
Global temperature rise
The excess heat building up in the climate system from the energy imbalance is pushing up global temperatures at a record rate of 0.27C per decade.
We estimate that human-induced warming – the amount of observed global surface
temperature increase attributable to both the direct and indirect effects of human activities – reached 1.37C in 2025. This has risen from 1.0C in 2017, as reported in IPCC AR6.
While natural variability in the climate system – such as El Niño or La Niña events – can also influence temperatures year-to-year, the upward temperature trend we are seeing is being driven by the persistent imbalance in energy.
We now expect global temperatures to exceed the Paris Agreement limit of 1.5C above pre-industrial levels around the year 2030.
This is significant because 1.5C has been identified as the critical dividing line between manageable climate risks and catastrophic, potentially irreversible damage to global ecosystems and human societies.
Heat accumulating throughout the Earth system
While heat is accumulating throughout the Earth system, it is not being distributed evenly around the globe.
Since the 1970s, around 90% of this heat has been taken up by the ocean, affecting marine ecosystems, ocean circulation patterns, sea level rise and climate extremes.
For example, the number of marine heatwave days – periods of unusually high sea surface temperatures – has more than tripled globally since the early 1990s. The year 2025 alone saw 65 days of marine heatwaves – meaning they occurred, on average, more than one day a week.
Meanwhile, the cryosphere – the portion of the Earth made up of frozen water, including glaciers, ice sheets and permafrost – is experiencing widespread ice loss and thawing in response to the growing energy imbalance. This affects ecosystems, sea level rise and infrastructure in polar and high-latitude regions.
Rapid warming has also resulted in record extreme temperatures over land, with average maximum temperatures for any single day over 2016-25 around 1.92C above pre-industrial levels). This is an increase of almost half a degree compared to the previous decade (2006-15).
Sea level rise and the energy imbalance
Sea level rise provides one of the clearest long-term signals of a changing planet.
It is closely linked to Earth’s energy imbalance. As heat accumulates in the ocean, water expands, raising sea levels. Meanwhile, a warming land and atmosphere means addition of water to the oceans through melting of glaciers and ice sheets, also adding to sea level rise.
Over the long-term, sea levels have been rising, on average, at a rate of around 1.8mm per year since 1901, totalling a record 23cm in 2025. This is increasing the risk of coastal flooding, erosion and habitat loss in many low-lying areas around the world.
This rise can be seen in the left-hand chart below, which shows observed global sea level changes from tide gauges (grey and blue dashed lines) and satellites (red dashed lines) since 1901. The solid lines indicate the average across multiple datasets.
Sea level rise is accelerating consistent with the observed increase in Earth’s energy imbalance. Over 2006-25, sea levels have risen at a rate of 3.67mm per year – more than double the rate of 1.69mm per year seen over 1976-95.
This increasing rate is shown in the right-hand figure below, which shows four successive overlapping 20-year periods and the most-recent decade.
(Last year’s transition from El Niño to weak La Niña conditions affected global rainfall patterns and led to a small and temporary fall in global average sea level in 2025. This explains the slight decrease in rate of sea level rise for the most recent decade, which is affected more than the 20-year period 2006-25.)
The bigger picture
Despite greenhouse gas emissions not increasing as rapidly as in the 2000s, this year’s IGCC findings continue to show how far and how fast the climate is changing due to human activity.
A significant increase in decarbonisation efforts in the second half of this decade is required to slow down the rate of human-caused warming and limit the escalation of climate risks and impacts.
These findings, like many others produced by scientists across the globe, rely on international expertise, partnership and the maintenance and availability of global climate datasets and the global observing programmes that underpin them.
This year’s edition of IGCC used more than 40 global datasets produced by research teams around the world, including the NASA satellite record of the Earth’s energy imbalance and the ARGO deep ocean float network.
However, a number of long-term monitoring programmes could be threatened by funding decisions made by governments around the world, most notably the Trump administration in the US.
Local meteorological data and weather balloon measurement programmes in many countries have declined in recent years, especially in Africa, the west Pacific and South America. This reduces scientists’ ability to monitor and understand key indicators of climate change.
This is not just an issue for climate science. Many of these observations are key to weather forecasts and systems that provide early warning for extreme weather. For example, media reports have suggested that recent reductions in weather balloon measurements in Alaska led to a lack of warnings for a recent winter storm.
The continuity and integrity of the climate observations that scientists use to understand how the climate is changing depends on effective and sustained coordination by international organisations, such as the Global Climate Observing System, the World Meteorological Organization and World Climate Research Programme.
Without this data and its coordination, future assessments will be much more difficult at a time when urgent climate action is needed.
The post Guest post: How a record-high ‘energy imbalance’ is driving global warming appeared first on Carbon Brief.
Guest post: How a record-high ‘energy imbalance’ is driving global warming
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