KATHMANDU: Global Coordinator of LDC Watch, a global civil society network, Dr Arjun Karki has said debt is a major concern for Least Developed Countries (LDCs), Landlocked Developing Countries (LLDCs), Small Island Developing States (SIDS), and other developing countries.

Addressing on the theme Challenges faced by LDCs, LLDCs, SIDS and other developing countries and the tax justice agenda during the sideline event at the International Conference on Financing for Development (FfD4) in Seville, Spain, Dr Karki said total public debt of LDCs reached a record-high level of USD 774 billion in 2023, having tripled in nominal terms since 2010.

By April 2023, six LDCs were already in debt distress, while 17 others were at high risk. Alarmingly, in 2021, LDCs were spending four to five times more on public and publicly guaranteed debt service than in 2009, a sign of an increasingly unsustainable debt burden.

He stressed the deep structural challenges faced by in advancing the tax justice agenda and called for broader systemic reform. He emphasized that these countries – 44 LDCs, 32 LLDCs, and 39 SIDS – represent the most vulnerable groups of the international community.

“These countries are not only economically small and geographically isolated but also politically marginalized. Their realities often remain invisible on the global radar. The challenges they face go far beyond poverty; many struggle with shrinking democratic space and increasing exclusion from global decision-making,” he said.

In terms of domestic revenue mobilization, many LDCs have struggled to meet the Addis Ababa Action Agenda (AAAA)’s 15 percent tax-to-GDP target. On average, the tax-to-GDP ratio in LDCs increased only slightly, from 12.6 percent in 2015 to 13.2 percent in 2022.

Similarly, many LLDCs, including Afghanistan, Azerbaijan, and Bhutan, had ratios below 15 percent during 2016-2020. While some SIDS have relatively higher tax-to-GDP ratios, exceeding 20 percent, their economies remain highly vulnerable and undiversified.

Official Development Assistance (ODA) is also on a worrying decline. According to the OECD (2024), ODA from DAC countries fell by 7.4 percent in real terms compared to 2023. Net bilateral aid to LDCs dropped to USD 35 billion, which is a 3 percent decrease. Only four countries met the long-standing 0.7 percent of GNI target in 2024: Denmark (0.71 per cent), Luxembourg (1.00 per cent), Norway (1.02 per cent), and Sweden (0.79 per cent).

He criticized the inclusion of security and defense costs in ODA, following a DAC decision in 2016, which has allowed aid to be militarized, diverting funds from critical socio- economic development needs, said Dr Karki, who is also Executive President of Rural Reconstruction Nepal (RRN).

The situation is no better in climate finance. Although the adoption of the New Collective Quantified Goal (NCQG) in December 2024 marked a new phase, it still falls far short of addressing the massive USD 5-6 trillion climate finance gap projected for developing countries by 2030.

For SIDS, only USD 2.4 billion was allocated in 2023, compared to the estimated USD 36 billion needed for adaptation alone, as reported by the Standing Committee on Finance. Climate finance to countries that are both SIDS and LDCs dropped by nearly 65 percent between 2022 and 2023, amounting to a USD 380 million reduction.

In contrast, LDCs received USD 13.5 billion in 2023. While both groups face severe climate challenges, the disproportionate allocation demonstrates that the specific vulnerabilities of SIDS are still not being prioritized. Karki reiterated that climate finance must be public, new and additional to the ODA commitment.

Karki addressed the persistent issue of Illicit Financial Flows (IFFs). According to the UNCTAD, Africa alone loses an average of USD 88.6 billion per year to IFFs, which is around 3.7 percent of the continent’s GDP. Tackling IFFs could reduce Africa’s financing gap by as much as 33 per cent.

Dr Karki, a former envoy of Nepal to the US, underscored the urgency of systemic reform to support these countries. Their structural disadvantages, fiscal constraints, climate vulnerabilities, and limited global influence demand a more just and inclusive international financial architecture that addresses root causes and delivers on long-standing commitments, he said.