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With over $7.2bn in so-called concessional loans failing to address poverty in poorer countries like Nepal, the pressure is now on the West to shift toward debt relief or grants. Meanwhile, climate change has become a convenient pretext to impose additional loan burdens on vulnerable LDCs like Nepal. This is already evident in Nepal through initiatives like the Green, Resilient and Inclusive Development (GRID). Multilateral lenders like the World Bank and the IMF, exploiting the greed of Nepali finance bureaucrats for petty benefits, have secured blind approvals for millions in loan agreements in the name of disaster resilience.

This looks like the most likely scenario given the ongoing discussion in COP29 at Baku. A new climate finance goal is up for discussion, which may scale up to $1trn every year by 2030. This was a replacement for an unrealized $100bn target. The funding gaps relating to mitigation, adaptation and clean energy transition need to be addressed. These include diversification of funding through non-grant elements of grants and concessional loans, private sector involvement, and predictability and accessibility to developing nations of funds. Other innovative mechanisms in contemplation for mobilizing additional resources include the Climate Finance Action Fund.

The recent report of the Change Initiative details how the ‘Climate Debt Risk Index 2024’ says Least Developed Countries fall into debt because of climate financing practices. Though they contribute less than 3.3 percent of the global emissions, their countries suffer the most drastic impacts of climate change and are persistently entangled in a web of debt from loans issued for climate resilience and adaptation.

It also highlights the ‘climate debt trap’, where LDCs are forced to borrow extensively in order to combat the vagaries of climate. “The current reliance on  loan-based climate finance,” the report says, “is leaving many countries exposed to debilitating debt, taking money away from vital investments such as health care and infrastructure.” Ironically, this framework has undermined the resilience it was designed to foster by keeping LDCs near financial bankruptcy.

This report states, “LDCs are among those most vulnerable to the impacts of climate change and yet bear the highest financial burden through unsustainable loan practices.” Debt related to climate in these countries has risen significantly, constraining their potential for effective application of sustainable climate strategies and, generally speaking, their development.

Climate Debt Risk Index (CDRI) measures countries' risks regarding climate debt for the next decade and projects a likely increase or stability in the levels of debt. The CDRI spotted many high-risk zones, mainly located within South Asia, East Africa and Southeast Asia, showing striking regional differences in vulnerability and loan dependency.

Within South Asia, Sri Lanka and Bangladesh emerge as displaying a very high risk. The former will witness its risk score reach up to 74.17 points by 2030. Bangladesh also emerges as a very high risk because it has signed loans worth $14.31bn, and on account of heightened vulnerability across climate and loan dependence, Bangladesh will emerge as a country slipping from high to very high risk. On an average, East Africa bears the highest risk levels, as already witnessed by record CDRI scores of Mozambique and Madagascar.

The score for Madagascar will peak in 2030 at 81.41, a debt risk category classified as ‘very high’. Meanwhile, in Rwanda, the risk jumps significantly from high to very high risk in light of increased climate challenges.

In Southeast Asia, Myanmar still has one of the highest climate debt risks, with an estimate of 78.87 by 2030, whereas Cambodia and Laos remain high-risk countries due to increased dependence on loans arising from climate finance. The Philippines has demonstrated only a moderate level of debt risk, but many challenges persist. It also categorizes West Africa and the Caribbean as vulnerable zones, while climate-related loans are driving countries like Senegal and Haiti toward high risk by 2030.

Dependence on loans

One disquieting trend reflected in the index is that though climate finance continues to flow in LDCs, much of this is loan-based. In the case of Bangladesh, it has received a total climate finance of $14.31bn, with a Loan-Grant Ratio of 8.34, indicating that loans are highly predominant over grants. Whereas Sri Lanka has a Loan-Grant Ratio of 12.13, one of the highest in the report. Afghanistan relied on grants only and received $0.42bn with no loans, suggesting an absolute breach between debt-burdened and debt-free countries. This creates loan dependency that increases their vulnerabilities, as they have to pay these debts while staring at climate disasters.

According to the report, such financial burdens are unsustainable and divert countries from investing in very important aspects necessary for building resilience against climate impacts.

Adaptation vs mitigation

The second most striking pattern is the differential adaptation and mitigation funding across LDCs. Countries such as Pakistan, a country that received $1.84bn for climate finance in the first instance decided to spend on mitigation at $1.45bn, hence having a low Adaptation and Mitigation Ratio of 0.29. Cambodia has spent more on a balanced approach, with an Adaptation and Mitigation Ratio of 2.07, having equal efforts in both areas.

This means, in practice, mitigation will have a role of reducing the emissions, whereas adaptation measures are core to the LDCs, whose current impacts of the climate change-related events such as flooding, hurricanes, and droughts are already felt. Indeed, it has been suggested that without proper financing of adaptation, these countries will continue to suffer significant economic and social damages. According to the report, a more balanced financing model is important in strengthening resilience.

Sustainable climate finance

The findings of the Climate Debt Risk Index 2024 bring forth actionable solutions on how to mitigate the climate debt crisis the LDCs find themselves in. First, it advocates for a shift from loan-heavy climate finance toward grant-based financing, especially for projects targeting adaptation and loss and damage. This would involve more grants and less loans, hence enabling the LDCs to reduce their debt burdens while building resilience sans increased financial burdens.

The report also recommends debt-for-climate swaps as a method to transform outstanding debts into climate resilience funds, easing burden off the national budget while pursuing climate objectives. In such a deal, part of the country’s debt would be written off in exchange for spending on climate resilience, adaptation, or biodiversity protection. Having proven potentially workable in the past, it is therefore recommended as a means of pursuit for countries at high risk.

Besides the debt-for-climate swaps, the report prescribes innovative financing mechanisms in the form of climate resilience bonds and carbon taxes. Climate resilience bonds would raise funds dedicated to adaptation, while carbon taxes would represent a new revenue stream, keeping off the burden of national debt for climate projects. According to the report, such mechanisms could be decisive in bringing the global climate finance paradigm into the realm of sustainable solutions.

Global policy reforms 

The Climate Debt Risk Index 2024 report includes several remedies regarding the climate debt burden on LDCs. First and foremost, it calls for grants over loans in adaptation and loss and damage to reduce dependence on debt-heavy financing structures that result in a growing financial burden on these countries. It also calls for ‘debt-for-climate swaps’ that would allow part of the debt to go toward building resilience to climate change, thereby reducing fiscal burdens on those economies.

The report calls for global policy reforms to ensure due transparency in the allocation of climate finance, hence backing these financial shifts. It also sets out a clear, standardized set of metrics under the UNFCCC to track the effective delivery and verification of climate finance, hence ensuring equitability and efficiency in its use. These solutions together contribute toward the paradigm shift that needs to take place for the delivery of climate finance in a more sustainable, transparent and equitable manner for LDCs.

In the early hours of 12 July 2024, two buses tragically plunged into the Trishuli River at Simaltal, Chitwan, claiming several lives and testing Nepal’s disaster response capacity. Within hours, 52 trained members of Nepal's Armed Police Force (APF), along with more than 200 personnel deployed in rescue operations, arrived at the scene and started their work. However, in a move that has become all too familiar, the government sought international assistance, which led to the deployment of 12 personnel equipped with advanced technology like sonar systems and magnets—tools that Nepal lacked—for search operations.

The result? The APF divers, operating with limited equipment, outperformed the foreign team in terms of efficiency. The incident exposed the fact that Nepal's disaster response often relies on foreign assistance, even when capable local teams exist. This tendency raises critical questions about the country's dependency mindset and its failure to empower its own disaster management infrastructure. Despite facing frequent natural disasters—earthquakes, floods, landslides, and more—the country has yet to establish a comprehensive, well-resourced, and functional system, not just a lame institution, for disaster preparedness and response. 

International assistance can be a lifeline in moments of crisis, but relying all the time on it as the primary solution exposes Nepal's willingness and ability to protect its citizens. 

What the Simaltal incident teaches us

The Simaltal incident is a reminder of the need to shift our focus from reactive measures to proactive disaster management. If we are to quickly scan the current DRR regime in Nepal, at least five key actions can be said to be crucial to correcting our past mistakes and building a resilient DRRM system.

Firstly, let’s not just enjoy doing one after another workshops for response planning in star hotels. Instead, the Ministry of Home Affairs must invest in modern equipment and technology disaster risk reduction measures. The Study says if we invest 1 USD in preparedness, we could save 7 USD in post-disaster management. 

The APF divers’ performance highlighted their courage and commitment, but it also exposed the limitations of working without advanced equipment. The tools brought by the foreign rescue divers--such as sonar systems for underwater detection--are not luxuries but necessities for modern disaster response. Nepal must invest in acquiring and maintaining such equipment, along with training personnel in their use. 

Second, the Ministry will be at ease if it invests in empowering and equipping national forces and local governments. Nepal has competent agencies like the APF and Nepal Army, yet their potential is undermined by a lack of resources. We must provide these agencies with continuous training, better infrastructure, and the authority to act autonomously in times of disaster. Local governments, too, need to be integrated into the national disaster preparedness framework, enabling them to take the lead in disaster-prone areas.

Third, given the advancement in technology, we must invest to fully develop a robust multi-hazards early warning system. Let me bring up a case. The Department of Hydrology and Meteorology had projected above-normal rainfall for this year. By mid-monsoon, 70 percent of the rainfall had already occurred and by early August an average of 90 percent rainfall had been recorded. Early warnings are even more critical, where every second matters for saving lives and properties. 

On July 6, several villages in Bagmati and Lumbi were flooded due to heavy rainfall a day before (on July 5) and Kanchanpur of Sudurpaschim recorded 624 mm of rainfall in 24 hours which is extremely heavy rainfall.  The news media had published warning news including expert interviews two days in advance citing weather forecasts, but the National Disaster Risk Reduction and Management Authority (NDRRMA) failed to act promptly. All it did was upload an awareness song on its website only by late afternoon on July 6. 

The lack of an effective early warning system has exacerbated the impact of disasters in several such cases, including during the Bhotekoshi floods in 2016 and the recent Thame floods in Solukhumbu. Nepal needs a comprehensive, tech-enabled early warning system that can provide real-time data on natural hazards such as floods and landslides. One that is now run by the Department of Hydrology and Metrology (DHM) requires a massive upgrade in its current EWS

Fourth, it is time we prioritize Disaster-Resilient Infrastructure given the losses we have already faced with the multi-million-dollar Melamchi project constructed on ADB loan. Whether it's flood barriers, earthquake-resistant buildings, or safe roadways in landslide-prone areas, investments in infrastructure can dramatically reduce both the human and economic toll of disasters. Nepal’s geography is challenging, but modern engineering can mitigate these risks if prioritized. A  flood in the Koshi basin, for example, could wipe away investment made in the Hydropower sector (some already in construction, some in pipeline) worth over US 10bn. Climate-proofing this investment makes a business case.

Finally, Nepal needs to roll up its sleeves and work hard to institutionalize preparedness and response through policy and governance. Not much progress has been made in this sector despite the substantive support from international partners. 

The unfortunate reality is that the Ministry has no information on the impact of the 36 projects implemented in areas like DRR and urban resilience with donor's money. This reflects a potential misuse of donor funds.

While Nepal has made progress in policy-making, including setting up of NDRRMA, the implementation often falls short. It lacks full authority like the one enjoyed by India’s National Disaster Management Authority (NDMA). This also means creating a clear chain of command during emergencies. During the Simaltal tragedy, the state was in a doldrum as the parties were busy flexing muscles to form a new government. A strong NDRRMA would have come into action irrespective of any change in the political equation in Kathmandu. 

 All these failed disaster responses that we witness every monsoon, therefore, should not be remembered only for its loss of life but as a wake-up call. If Nepal fails to learn from these repeated incidents, we risk falling into the same trap of reactionary measures that only exacerbate the loss and damage.