Debt, Climate, and Development in Asia and the Pacific: Breaking the Vicious Circle

Volz, Ulrich; Akhtar, Shamshad; Dryden, Alex

Abstract

Developing countries in the Asia and Pacific region are at the forefront of climate change, and addressing urgent climate challenges requires substantial financial commitment. At the same time, the region is struggling under mounting debt burdens. The external sovereign debt of developing Asia and Pacific nations excluding the People’s Republic of China (PRC), has more than doubled since 2008. Rising debt burdens are becoming increasingly costly, with average debt servicing expenses over the past three years exceeding their pre-2020 levels by more than 40% as a share of government revenue. This study analyzes the region’s worsening debt dynamics and the additional strain posed by climate challenges, highlighting how unsustainable debt burdens threaten sovereign fiscal stability and undermine the ability of the developing Asia and Pacific region to meet its climate goals. It provides an overview of debt and development challenges in the region and discusses the risk it faces of an accelerating vicious circle of debt, climate change, and underdevelopment. And finally, it makes the case for concerted efforts to proactively tackle sovereign debt problems, which in some cases will require significant debt relief as a pathway to sustainable growth.

Citation

Volz, U., Akhtar, S., & Dryden, A. (2025). Debt, Climate, and Development in Asia and the Pacific: Breaking the Vicious Circle

• Working Paper Type: Working Paper
• Online Publication Date: Jul 1, 2025
• Publication Date: Jul 1, 2025
• Deposit Date: Jul 23, 2025
• Publicly Available Date: Jul 25, 2025
• Series Title: ADBI Working Paper
• Series Number: 1516
• Series ISSN: 1882-3017
• DOI: https://doi.org/10.56506/POVF3023
• Keywords: sovereign debt, climate change, debt sustainability
• Publisher URL: https://www.adb.org/publications/debt-climate-and-development-in-asia-and-the-pacific-breaking-the-vicious-circle
• Additional Information: JEL Classification: H63, Q54, F34