SPILLOVER EFFECTS: THE FOSSIL FUEL– DEBT TRAP IN THE GLOBAL SOUTH

The report analyzes how high debt-service obligations and fossil fuel reliance create a structural trap for Global South nations, where fiscal pressures force governments to prioritize short-term liquidity and fossil fuel extraction over long-term renewable energy transitions. Through case studies of Colombia, Egypt, Guyana, Jordan, and Sri Lanka, it demonstrates that this nexus is systemic, often reinforced by the conditionalities of International Financial Institutions (IFIs) and the interests of multinational corporations. The document advocates for comprehensive debt cancellation, the end of fossil fuel finance, and a global transition framework based on 'extraction equity' to dismantle these structural barriers.

• Sovereign debt in low- and middle-income countries reached nearly US$8.9 trillion in 2024, with interest payments hitting a record US$415.4 billion, often exceeding spending on health and education.
• A structural feedback loop exists where debt and fossil fuels reinforce each other: high debt service crowds out renewable investment, while fossil fuel contracts and subsidies create fiscal rigidities that deepen indebtedness.
• Colombia faces a tension where fossil fuel exports are necessary to generate the foreign currency required for debt servicing, yet this reliance locks in vulnerability and delays its ambitious just energy transition.
• Guyana presents a paradox as a net-zero forest nation that has rapidly become a major oil producer; while oil wealth has reduced its debt-to-GDP ratio to 24% by 2024, it introduces risks of 'Dutch disease' and carbon lock-in.
• Jordan is caught in a 'fiscal addiction' to fossil fuel consumption taxes, which generate up to US$2.8 billion annually, creating a paradox where decarbonization threatens the state's ability to service debt.
• Jordan's renewable energy growth was stalled by 'take-or-pay' clauses in fossil fuel contracts, such as the US$15 billion gas deal with Israel, which forced the grid to prioritize gas over cheaper renewables.
• Sri Lanka's 2022 default and subsequent IMF-mandated austerity have constrained its renewable energy goals, forcing a reliance on private, debt-based financing and potentially leading to carbon lock-in through LNG deals.
• Climate disasters, such as Cyclone Ditwah in 2025 which caused damage equal to 4% of Sri Lanka's GDP, are not accounted for in IMF debt-sustainability analyses, forcing countries to borrow more for recovery.
• International Financial Institutions (IFIs) often impose conditionalities—such as subsidy removal and privatization—that prioritize creditor repayment over social protection and climate resilience.
• Credit rating agencies reinforce the fossil fuel trap by treating hydrocarbon reserves as implicit collateral, thereby penalizing countries that phase out fossil fuels with higher borrowing costs.

APA

Nasrallah, A., Rodriguez, C., Fouad, H., Elhatimi, I., Rambarran, J., Mohan, P., Kadirgamar, N., & Sawas, A. (2026). SPILLOVER EFFECTS: THE FOSSIL FUEL– DEBT TRAP IN THE GLOBAL SOUTH. Fossil Fuel Non-Proliferation Treaty Initiative. https://www.fossilfueltreaty.org/s/Spillover-Effects-The-Fossil-FuelDebt-Trap-in-the-Global-South-Report-Online-version.pdf

Chicago

Nasrallah, Ali, Camilo Rodriguez, Habiba Fouad, Ibrahim Elhatimi, Jwala Rambarran, Preeya Mohan, Niyanthini Kadirgamar, and Amiera Sawas. SPILLOVER EFFECTS: THE FOSSIL FUEL– DEBT TRAP IN THE GLOBAL SOUTH. Fossil Fuel Non-Proliferation Treaty Initiative, 2026. https://www.fossilfueltreaty.org/s/Spillover-Effects-The-Fossil-FuelDebt-Trap-in-the-Global-South-Report-Online-version.pdf.

Wikipedia

{{cite report |last1=Nasrallah |first1=Ali |last2=Rodriguez |first2=Camilo |last3=Fouad |first3=Habiba |last4=Elhatimi |first4=Ibrahim |last5=Rambarran |first5=Jwala |last6=Mohan |first6=Preeya |last7=Kadirgamar |first7=Niyanthini |last8=Sawas |first8=Amiera |title=SPILLOVER EFFECTS: THE FOSSIL FUEL– DEBT TRAP IN THE GLOBAL SOUTH |publisher=Fossil Fuel Non-Proliferation Treaty Initiative |date=April 2026 |url=https://www.fossilfueltreaty.org/s/Spillover-Effects-The-Fossil-FuelDebt-Trap-in-the-Global-South-Report-Online-version.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{nasrallah2026spillover, author = {Nasrallah, Ali and Rodriguez, Camilo and Fouad, Habiba and Elhatimi, Ibrahim and Rambarran, Jwala and Mohan, Preeya and Kadirgamar, Niyanthini and Sawas, Amiera}, title = {{SPILLOVER EFFECTS: THE FOSSIL FUEL– DEBT TRAP IN THE GLOBAL SOUTH}}, institution = {Fossil Fuel Non-Proliferation Treaty Initiative}, year = {2026}, month = apr, url = {https://www.fossilfueltreaty.org/s/Spillover-Effects-The-Fossil-FuelDebt-Trap-in-the-Global-South-Report-Online-version.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }