The UN Development Programme (UNDP) published a paper calling for urgent debt relief for developing countries with severe debt problems. The report warns that in the absence of effective debt restructuring, poverty will rise, and investments in climate adaptation and mitigation will not happen.

The paper titled, ‘Avoiding ‘Too Little Too Late’ on International Debt Relief,’ identifies 54 developing economies in need of urgent debt restructuring. These countries represent just over 3% of the global economy, 18% of the population, and more than 50% of people living in extreme poverty. Twenty-eight of them are among the world’s 50 most climate-vulnerable countries. The largest geographical subgroup among these is Sub-Saharan Africa (25 countries), followed by Latin America and the Caribbean (LAC) (ten countries).

Debt relief would be a small pill for wealthy countries to swallow, yet the cost of inaction is brutal for the world’s poorest.

— UNDP Administrator Achim Steiner

The paper calls for the international community to urgently step-up debt relief efforts “to avert a deepening development crisis,” and stresses the need for “a re-think and ramp-up of official sector concessional lending to vulnerable developing economies.” It argues that focus must shift from debt rescheduling to comprehensive restructuring that involves write-offs “allowing countries a faster return to growth, financial markets, and development progress.”

“A debt deal might now be on the horizon,” flags a UNDP release, noting that current market conditions “encourage private creditors to negotiate debt relief under the G20’s Common Framework for Debt Treatments.” “Higher interest rates, a strong dollar and a looming global recession could change their bargaining position.”

“When emerging market bonds trade at 40 cents on the dollar, private creditors suddenly become more open to negotiation. The missing ingredient, at this moment, are financial assurances from major creditor governments to clinch a deal,” said George Gray Molina, Senior Economist, UNDP. 

As a way forward, the paper proposes focusing on debt sustainability analyses, official creditor coordination, private creditor participation, and the use of state-contingent debt clauses that target future economic and fiscal resilience.

The report was released ahead of the World Bank Group/International Monetary Fund (IMF) Annual Meetings and the Fourth G20 Finance Ministers and Central Bank Governors Meeting, taking place back-to-back in Washington, DC, US, in October 2022. [Publication: Avoiding ‘Too Little Too Late’ on International Debt Relief] [Publication Landing Page] [UNDP News Release] [UN News Story]