Developing countries face climate finance deficit as loan payments soar

With rich governments and development banks delivering more climate finance as loans, developing countries could be paying back more each year than they receive in new lending by the mid-2030s, new research has found.

CARE Denmark and the CARE Climate Justice Center worked out the repayment schedules of around 17,500 climate loan records reported by developed countries and multilateral lenders between 2011 and 2024, in what the researchers say is the first analysis of its kind.

With rich governments and development banks delivering more climate finance as loans, developing countries could be paying back more each year than they receive in new lending by the mid-2030s, new research has found.

CARE Denmark and the CARE Climate Justice Center worked out the repayment schedules of around 17,500 climate loan records reported by developed countries and multilateral lenders between 2011 and 2024, in what the researchers say is the first analysis of its kind.

It estimates that repayments on these public climate loans, including interest and fees, nearly tripled from $6.9 billion in 2020 to $20.1 billion in 2024. That is equivalent to around a fifth of the public climate finance that developed countries reported providing that year.

If climate lending stays at its 2024 level each year and on the same terms, annual repayments on old and new loans would overtake fresh lending in 2036, the researchers found.

“By not making the backflows of climate finance visible, Global North countries cheat their public,” John Nordbo, senior climate adviser at CARE Denmark, told Climate Home News. “They give an impression that they are actually more supportive than they are.” 

Finance takes centre stage at COP31

The World Bank is by far the biggest lender in the portfolio, followed by Japan and France. Overall, loans worth $489 billion will cost borrowers an estimated $663 billion over their lifetimes.

Climate finance looks certain to become a central issue at COP31 after developing nations scored an early win by getting a new work programme on climate finance added to the summit’s official agenda. 

A key question looming over the talks in Türkiye is how rich countries will make good on their promise to deliver at least $300 billion a year in climate finance by 2035, amid shrinking aid budgets and spending redirected to other priorities, including defence.

Nordbo said the delivery of the climate finance goal agreed two years ago in Baku depends heavily on multilateral development banks and the private sector, ushering in the risk of an even larger share of loans. 

Loans already make up most public climate finance. Developed countries provided $101.6 billion in public climate finance in 2024, two-thirds of it as loans, according to the OECD.

“That’s the preferred solution to the climate finance issue right now,” he said. “It doesn’t really seem sustainable.”

Debt trap

The repayments add to a wider debt squeeze on the Global South. Developing countries paid a record $1.4 trillion in principal and interest in 2025, a fifth consecutive annual increase, according to the World Bank’s International Debt Report, published last week.

Countries at the frontline of the climate crisis are among the hardest hit. Almost 94% of the most climate-vulnerable countries are in, or at significant risk of, debt distress, and they spend nearly 25 times more on debt repayments than on climate action, according to a September report by ActionAid. 

CARE accepts that concessional loans can make sense for climate projects that generate revenue. But it argues they are the wrong tool to fund adaptation measures that protect lives rather than produce income, as well as for countries recovering from climate disasters or already in debt distress.