April 15, 2026- A new report, Spillover Effects: The Fossil Fuel-Debt Trap in the Global South, demonstrates that the linkage between fossil fuel dependence and sovereign debt is systemic, not incidental. Released by the Fossil Fuel Treaty Initiative, the report includes case studies of how this trend is playing out in five countries, authored by researchers based in those nations. 

The escalating debt crisis confronting the Global South is a structural crisis rooted in historical patterns of extraction, unequal financing and imbalanced power relations. In 2024, this debt rose to an all time high of US$8.9 trillion and interest payments reached an unprecedented US$415.4 billion. Bottomline - more resources are going to servicing debt than to health, education or climate action. 

Countries are locked into continuing and/or expanding fossil fuel extraction to service debt. This means that for fossil fuel importing countries, oil and gas price volatility destablises trade balances and widens deficits. For exporters, commodity cycles and stranded asset risks expose public budgets to long term instability. Fossil fuels are also the biggest cause of climate-driven loss and damage which is escalating into trillions of dollars across the Global South. Millions of premature deaths and degradation to ecosystems due to fossil fuels add massive costs to lives and economies. 

Spillover Effects unpacks the drivers of the fossil fuel-debt crisis and provides illustrations of how structural injustices are manifesting in Colombia, Egypt, Guyana, Jordan and Sri Lanka.  The country case studies highlight the same dynamics are in play across contexts from import vulnerability to emerging fossil fuel production and crisis-induced default. 

The report shows the global transition away from fossil fuels is incumbent on building fairness into the global macroeconomy by addressing unjust debt and unfair rules of the international financial system which are grounded in an extensive body of evidence. It offers five core recommendations for all levels of decision makers: 

• International Financial Institutions and Multilateral Banks - Dismantle carbon lock-in and debt reproduction at the source. Implement debt cancellation; end all fossil fuel finance and realign portfolios towards transition-enabling public goods; reduce renewable energy costs through de-risking; and uphold human rights in lending. 

• Global North Governments - Stop blocking the transition away from fossil fuels and be a genuine partner for macroeconomic and climate justice. Pay a fair share of climate finance through grants, not loans; end public finance for fossil fuels at home and abroad; lead on the transition with commitments through national plans and by accepting differentiated timelines across the Global South; stop blocking reform of the global financial system; reject false solutions such as carbon capture and storage; and facilitate free and open patent transfers for green technologies. 

• The United Nations - Build multilateral rules for debt and transfer.  Establish a binding mechanism on debt resolution; create a global public debt registry; and strengthen anti-corruption and public financial governance.

• Global South Governments - Seek and champion an equitable global pathway of transition that addresses fiscal and political constraints.  Commit to differentiated, managed fossil fuel phase outs in national plans; replace fossil fuel revenues and manage transitional deficits; advance green industrial policy; mobilise national development banks and pension funds to finance the green transition; strengthen democratic control over debt and public finance; build collective power through South-South cooperation; and promote regional energy sovereignty through grid integration. 

• All Decision Makers - Centre justice as an institutional and political process.  Plan for a just and equitable phase out of fossil fuels. In addition, safeguard the energy transition through enforceable just transition frameworks that include procedural justice and democratic participation; labour protection and economic security; equitable access to energy and public services; prevention of new forms of extraction and financialisation; and institutional accountability for long-term planning. 

Fossil fuel finance and sovereign debt are mutually reinforcing mechanisms of climate injustice. Escaping this trap requires coordinated transformation across global finance, debt governance and energy systems - anchored in justice and executed with political economic reform. 

Dr. Amiera Sawas, Head of Research and Policy- Fossil Fuel Treaty Initiative, “18 nations are beginning to negotiate terms of a Fossil Fuel Treaty. Discussing the relationship between debt, fossil fuels and climate change are core to this. International cooperation is needed to ensure fossil fuel producing countries in the Global North do not stand in the way of transforming unjust international finance systems that perpetuate fossil fuel extraction as a way to service debt, and lead in phasing out oil, gas and coal and supporting countries in the Global South to be part of the transition to renewable energy and low carbon economies.” 

Camilo Rodriguez, Research Analyst - Oil Change International. “Colombia is pursuing one of the world’s most ambitious plans to phase out fossil fuels, including halting new oil and gas licenses. Yet, international monetary systems and global energy markets are restricting Colombia’s efforts to  reduce vulnerabilities associated with fossil fuel dependence. Debt repayment accounted for over 20 percent of Colombia’s national budget in 2025 - more than education, health, or climate action. Rich countries must stop blocking reforms to the unfair global financial rules that keep Global South countries like Colombia trapped in fossil-fuelled debt cycles, and instead support calls for a UN debt convention that will deliver faster and fairer debt restructuring and cancellation to free up the international public finance for a transition to renewable energy.” 

Habiba Fouad and Ibrahim Elhatimi - Movement for Economic, Development and Ecological Justice, “Implementing a transition pathway in Egypt requires integrating labour and regional transition planning, affordability and social protection mechanisms during subsidy reform, reading foreign-exchange exposure in energy financing and governance and accountability frameworks to prevent elite capture. The goal is not merely to switch energy sources, but rather to transform the development model so it serves the needs of the state and society rather than the demands of global markets and debt structures.” 

Jwala Rambarran, Islands and Small States Institute, University of Malta, and Dr. Preeya Mohan, University of the West Indies.“Oil booms heighten structural vulnerabilities in climate-exposed economies. Without integration of climate adaptation and environmental safeguards, resource wealth can entrench fiscal fragility and ecological degradation, as is the case in Guyana. That is why it is critical that Guyana links strong governance with bold leadership on climate finance so it can transform its short term petroleum revenues into the foundation for long term resilience, diversification and climate justice.” 

Ali Nasrallah, Policy and Research Manager, Fossil Fuel Treaty Initiative,"Jordan's energy challenges cannot be separated from its debt structure, revenue composition and political economy incentives. Fossil fuel dependence is a fiscal trap that shapes policy behaviour, limits strategic choices and weakens national resilience. Breaking this cycle demands rethinking the financial architecture of the energy system as well as the broader fiscal system that surrounds it. This includes embedding the energy transition of a just and inclusive framework that prioritises public health, transparency and economic opportunity so the benefits of clean energy reach businesses, workers and households.”

Niyanthini Kadirgamar, Senior Research Fellow. “Sri Lanka stands at a pivotal moment, confronting both a crippling debt crisis and escalating climate threats. The 2022 economic collapse and dwindling foreign‑exchange reserves forced the government to curtail fossil fuel imports and impose fuel rationing. It laid bare the island’s heavy reliance on imported fossil fuels and the peril of a debt-fossil fuel trap. Although the Sri Lankan government has initiated an ambitious plan to expand domestic renewable energy sources, the lack of fiscal space due to harsh austerity and inadequate debt restructuring as well as the lack of access to concessionary global funding is resulting in more foreign debt to finance the transition. As a result, Sri Lanka provides an example of the need to plan for a just transition in advance of action including debt restructuring and reform of multilateral financial agreements.”