A New report From the Center for Economic and Policy Research (CEPR) examines the sovereign debt trap cycle and the need for systemic reforms to the international financial architecture that perpetuates it. As of March 2026, 75 of the 119 low- and middle-income countries assessed by the International Monetary Fund (IMF) and credit rating agencies were either already facing a debt crisis or at high risk of one. Developing countries are forced to choose between meeting debt obligations and investing in vital public services, climate resilience, infrastructure, and other sustainable development goals.
“Our report shows how interconnected the debt and climate crises are,” said one of the report’s authors and a senior research associate at CEPR. Ivana Vasic-Lalović He said. “Developing countries should not choose between repaying debt and financing schools and hospitals, or preparing for and responding to climate change.“
The economic impact of the Iran war is likely to exacerbate these dynamics, and not only because of it [to] “The immediate impact of higher energy and food prices, but also the broader dynamics that could follow: inflation persists, interest rates remain high, and external financing becomes more expensive,” the report notes.
The report goes on to note: “In the context of multiple unfolding crises, the current debt burden of developing countries is unsustainable and requires a comprehensive policy response, including systemic reforms, debt cancellation, as well as immediate relief measures.” The International Monetary Fund warned this week in its report Global economic prospects Kristalina Georgieva, director of the International Monetary Fund, said the Iran war could lead to the risk of a global recession in a “severe scenario” of very high oil prices continuing until 2027. A negative, but less severe, scenario could lead to global growth of just 2.5% this year and a 1.5% increase in inflation. to caution “Now, even our most optimistic scenario involves reduced growth” due to damage to oil and shipping infrastructure, supply disruptions, “and other traumatic impacts.”
the CEPR Report The report finds that interest payments on external public debt rose from 1.4% of government revenues in 2010 to 3.5% in 2024 – a higher percentage than during the Covid-19 pandemic crisis. Rising interest on debt at a time of low economic growth threatens to create the kind of debt traps that countries have fallen into in the past, leading to the Jubilee movement for debt cancellation, debt reviews, and increased scrutiny of foreign debt holdings.
“Unfortunately, the dynamic is all too familiar: the IMF continues to insist on conditions that put many countries in a debt trap.”“Onerous debt service payments prevent governments from being able to spend on basic services and humanitarian needs – as well as on climate response and mitigation measures.” Paula James He said.
“International Monetary Fund — Hence the US government which has decisive influence there — It can no longer ignore its responsibility in the debt and climate crises. We need climate finance commitments that do not exacerbate debt, such as the new issuance of Special Drawing Rights. Without urgent reforms, the world’s most vulnerable countries will remain trapped in an endless cycle of debt distress and climate disasters. Mark Weisbrot He said.
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