Africa faces a deepening debt crisis. External debt burden is projected to reach US$74 billion in 2024, up from US$17 billion in 2010. 62% of African nations are listed as heavily indebted poor countries by the International Monetary Fund (IMF). This severely limits their ability to invest in climate action.
Climate finance is key for Africa’s fight against the adverse impacts of climate change. It provides the funds necessary for both mitigation and adaptation, helping African nations build resilience and transition to a low-carbon future.
But despite Africa contributing less than 4% of global carbon emissions, the continent is facing an enormous financial burden, compounded by existing economic challenges and a lack of access to affordable capital.
On top of this, climate change is not just an environmental issue for Africa—it’s an existential threat. By 2030, it is estimated that climate change could push up to 130 million Africans into poverty.
Extreme weather events like droughts, floods, and heatwaves are already displacing communities and destroying livelihoods. The agriculture sector, which employs more than 60% of Africa’s workforce, is particularly vulnerable.
African economies depend heavily on sectors sensitive to climate disruptions, including hydropower and tourism as well as agriculture. Without adequate investment in climate adaptation, these sectors will continue to suffer, potentially driving millions into food insecurity.
According to the African Development Bank (AfDB), Africa needs at least US$277 billion annually by 2030 to implement its climate adaptation and mitigation strategies. However, current climate finance flows are a fraction of that figure, averaging just US$30 billion per year.
Loans Instead of Grants: A Growing Problem
One of the most pressing issues for African nations is the form in which climate finance is delivered. The vast majority—more than 70%—of climate finance for Africa comes in the form of loans, adding to the already overwhelming debt burden many nations face.
Countries like Senegal have received up to 85% of their climate finance in loans, pushing them further into debt, according to a report by Oxfam. In fact, Senegal has seen its debt soar to 62% of its gross national income.
“The irony is that African nations, which have done the least to cause climate change, are being forced to borrow to address its impacts,” says a senior analyst at the African Climate Policy Centre (ACPC). This has led to growing calls for wealthy nations—those responsible for the bulk of historical emissions—to offer more grant-based funding rather than loans.
The Debt Trap
Africa’s climate finance challenges are part of a broader systemic issue. For instance, African countries already face disproportionately high borrowing costs.
On average, African nations pay interest rates four times higher than the United States and twelve times higher than Germany. This inequality stems from a global financial architecture that was established after World War II, a time when most African countries were still colonies.
As a result, African nations continue to be trapped in cycles of debt, with debt servicing accounting for nearly 50% of government revenue in sub-Saharan Africa in 2023.
“Developing countries are now net contributors to the global economy due to the reverse flow of financial resources. In 2023 alone, $74 billion in interest payments flowed from low-income countries to wealthier nations,” says a recent World Bank report.
Global Financial Reforms
To address these structural issues, global financial reforms are urgently needed. The IMF and World Bank have begun to acknowledge this. The IMF’s Resilience and Sustainability Trust, launched in 2022, provides financing for climate adaptation.
So far, 18 countries, many of them African, have benefited. Additionally, the IMF’s Debt Sustainability Framework is being reviewed to better incorporate climate risks into its lending assessments.
However, many experts argue that these efforts are insufficient. “The $20 billion in Special Drawing Rights (SDRs) recently approved by the IMF for rechanneling through the African Development Bank is a step in the right direction, but it’s far from enough,” says Abebe Shimeles, former director at the African Economic Research Consortium (AERC).
He adds that previous reforms have often overlooked Africa, with a focus on middle-income and emerging economies.
For Africa to break free from its climate finance conundrum, debt restructuring must be part of the solution. Many experts and African leaders are calling for a shift toward grant-based financing.
Additionally, Africa is pushing for a new collective quantified goal (NCQG) for climate finance at COP29, set to take place in Azerbaijan. This goal would replace the US$100 billion annual commitment that wealthy nations pledged in 2009 but have failed to deliver.
“We need a financial target that reflects the needs and vulnerabilities of developing countries,” says Lee Everts, Chief of Macroeconomic Analysis at the United Nations Economic Commission for Africa (UNECA). “Previous commitments have been far too small and often come with conditions that are impossible to meet.”
Multilateral development banks (MDBs), particularly the World Bank, are seen as key players in the global climate finance ecosystem. In fiscal year 2023, the World Bank increased its climate-related funding by 20%, allocating 41% of its total lending to climate-related purposes. However, the scale of the investment required is huge.
The Independent High-Level Expert Group on Climate Finance estimated that developing countries (excluding China) will need to invest US$2.4 trillion annually by 2030 to meet their climate goals.
“Africa’s needs are immense,” says Vera Songwe, former Executive Secretary of the United Nations Economic Commission for Africa (UNECA). “MDBs must ramp up their contributions, and private sector engagement is also crucial to bridge the finance gap.”
Private Sector and Homegrown Solutions
While international finance is essential, the private sector can play a transformative role. Currently, private contributions account for less than 4% of the total climate finance flowing to Africa. This low percentage is a missed opportunity, particularly when considering Africa’s vast reserves of critical minerals for clean energy technologies.
Moreover, homegrown solutions like the African Union’s African Risk Capacity (ARC) offer a blueprint for the continent. ARC provides disaster insurance to African nations, offering payouts to help manage the risks of climate disasters. In 2020, ARC paid out US$23.5 million to Senegal for drought relief, demonstrating the potential for scalable, Africa-led initiatives.
As the continent fights against climate change. It cannot afford to carry the financial burden of climate mitigation and adaptation alone. Global financial systems must be restructured to provide African countries with the resources they need—whether through debt relief, grants, or more equitable borrowing terms.
So, who will pay for Africa’s climate future? The answer in part is that wealthy nations and institutions must take responsibility for their historical emissions and provide the necessary funding, while African nations must continue to advocate for a just and equitable climate finance system that works for the most vulnerable.
