In many countries of the Global South, the debt burden weighs on public budgets and prevents investments to improve climate resilience. On the occasion of the tenth anniversary of Pope Francis’ Laudato si’ encyclical, we analyse in this blog post how closely the climate and debt crises are intertwined. We show that it is now, in the run-up to the Fourth United Nations Conference on Financing for Development (FfD4), that the German government must take responsibility by helping to reshape the international financial architecture.
On 24 May 2025, the tenth anniversary of Pope Francis’ groundbreaking encyclical on social and environmental justice, Laudato si’, will be celebrated. Pope Leo XIV, recently elected following the passing of Pope Francis, is expected to build on his predecessor’s moral legacy by placing the global debt and climate crises at the heart of his address. Central to his message will be a call to reform the international debt system and to provide meaningful debt relief for low-income and climate-vulnerable countries.
This is no coincidence. Just a few weeks later, the Fourth United Nations Conference on Financing for Development (FfD4) will take place – a milestone event that only happens once a decade. Its aim: to redefine how the international community finances the Sustainable Development Goals (SDGs). This includes the question of how to manage and resolve the worsening global debt crisis.
The Jubilee 2025 Campaign and the Jubilee Commission
The Jubilee 2025 campaign draws from the historical and religious tradition of debt cancellation and applies it to the realities of the 21st century. Germanwatch, alongside 600 civil society organisations worldwide, is calling for an independent and fair process for debt restructuring, binding rules for private creditors, and greater transparency from both lenders and borrowers.
Why are such reforms necessary? Because the current system is neither transparent nor effective. Private creditors, who hold a growing share of developing countries’ debt, frequently refuse to participate in restructuring efforts. Meanwhile, many debtor countries hesitate to openly acknowledge their debt distress, fearing credit downgrades and capital flight.
The Vatican’s Jubilee Commission, led by economists and Nobel laureates Joseph Stiglitz and Martín Guzmán, will soon publish recommendations to address these systemic flaws. Their goal is to promote a debt architecture that incorporates climate and development goals while restoring fiscal space for countries in crisis.
When Debt Undermines the Fight against the Climate Crisis
In many countries of the Global South, debt repayments weigh on national budgets. In countries such as Mozambique, debt service exceeds government spending on health and education. After Pakistan’s devastating floods in 2022, the country was forced to continue repaying international creditors despite the urgent need for humanitarian aid. These fiscal constraints severely limit state capacity and societal resilience.
This structural crisis highlights how closely the climate and debt challenges are intertwined. As extreme weather events become more frequent and destructive, governments are left with fewer resources to invest in climate adaptation and disaster preparedness. New loans are often prohibitively expensive: rating agencies and investors increasingly view vulnerability to climate change as a risk to repayment, prompting higher interest rates and risk premiums. This dynamic creates a vicious cycle of growing debt, rising climate risks, and diminishing political agency.
To make matters worse, 51% of climate finance in Africa comes in the form of loans. Many countries are thus forced to take on additional debt to fund basic measures to improve climate resilience. This imbalance threatens both development gains and the stability of national economies.
Many Voices, One Direction? Reform Proposals on the Table
The Jubilee Commission’s work comes at a time of growing international attention to the climate-debt nexus. Just weeks ago, during the Spring Meetings of the World Bank and the International Monetary Fund (IMF), an expert commission supported by the German government published a major report. Their conclusion: climate, debt, and natural crises must be addressed together. Climate risk is a sovereign debt risk.
Multilateral institutions themselves are starting to acknowledge the need for change. As part of the ‘Bretton Woods at 80’ initiative, reform proposals for the World Bank and IMF are being examined. Meanwhile, the IMF is reviewing its Debt Sustainability Framework (DSF) for low-income countries. A recent analysis identifies incremental progress when it comes to integrating climate risk, but the methodology remains insufficient to capture the full scale of climate-induced debt distress.
Regional voices are also calling for action. The African Expert Panel, a group of leading African economists, recently issued a statement highlighting the particularly high cost of capital on the continent. Their message: debt is not inherently bad, but it must be productive and sustainable over time.
This multitude of reform efforts indicates growing momentum, but the lack of coordination remains a concern. Greater alignment between international institutions, independent commissions, and regional initiatives is needed to create a coherent and practicable reform agenda.
Financing for Development: Germany Must Lead
The Fourth UN Conference on Financing for Development (FfD4), scheduled for summer 2025 in Seville, offers a rare opportunity to bring these various reform proposals together. Convened only once every ten years, FfD4 is tasked with reshaping the international financial architecture to better support the 2030 Agenda and the Paris Agreement.
Key items on the agenda include new frameworks for debt transparency, a sovereign debt workout mechanism under the auspices of the UN, and instruments for converting debt into investments in climate resilience and development. Political will is required for these ideas to be translated into commitments.
Germany, as a creditor and influential actor in multilateral forums, has both the responsibility and the strategic interest to help advance this agenda. Failing to prevent future debt crises will ultimately cost more – in terms of geopolitical instability, forced migration, and missed climate targets.
The Time to Act Is Now
The year 2025 presents a unique political window to rethink international debt governance. From the Laudato si’ anniversary and the Vatican’s Jubilee campaign to ongoing reforms at the World Bank and IMF as well as the landmark FfD4 conference this summer – the momentum is building. Germany’s new government must seize this moment to show principled leadership. Championing fair and transparent debt relief mechanisms is not only a moral imperative, it reflects values that resonate with Germany’s Christian, social, and democratic traditions. The new government has rightly identified the need for greater fiscal space to meet today’s multiple crises at home. It should now act to ensure that its partners in the Global South can do the same.
Take Action: Sign the Petition
You can sign the petition for a fair and transparent international debt architecture at www.erlassjahr2025.de. Every signature sends a signal: the fight against climate change requires justice – and a financial system that empowers those most affected by it.
