The study estimates the extent of debt restructuring and suspension needed for 61 emerging market and developing economies in or at high risk of debt distress to achieve debt sustainability.
It finds more than USD 812 billion worth of debt needs restructuring across all creditor classes and offers recommendations on how to approach it.
A group of experts from the Boston University Global Development Policy Center, Heinrich-Böll-Stiftung, and the Centre for Sustainable Finance, School of Oriental and African Studies (SOAS) University of London, published a report outlining concrete proposals on how to “restore debt sustainability and mobilize resources to achieve shared development and climate change goals.”
The report titled, ‘Debt Relief for a Green and Inclusive Recovery: Guaranteeing Sustainable Development,’ comes amid a debt crisis engulfing countries in the Global South, recent calls for the international community to help developing countries achieve debt sustainability, and proposals for reform of the global financial architecture.
Analyzing “new data on the level and composition of public and private external sovereign debt” for emerging market and developing economies (EMDEs), the study estimates the extent of debt restructuring and suspension needed “for the 61 EMDEs in or at high risk of debt distress to achieve debt sustainability and put them on a path towards meeting their development goals and climate commitments.”
The report finds that while EMDEs’ sovereign debt is increasing overall, climate vulnerable countries are experiencing some of the worst debt distress. It further finds that for the 61 EMDEs included in the analysis, more than USD 812 billion worth of debt needs restructuring across all creditor classes.
The study proposes a guarantee facility “to provide enhancements for newly issued ‘green and inclusive recovery’ Brady bonds that private and commercial creditors can swap with a significant haircut against old debt.” It estimates that between USD 37.1 billion and 61.9 billion is needed to fund such a facility. The report also recommends that for the most debt distressed countries, at least USD 30 billion in debt be suspended over the next five years.
The report finds the Group of 20 (G20) Common Framework needs “immediate reform to provide debt relief for a green and inclusive recovery.” It recommends that:
- Public creditors grant significant debt reductions to bring distressed countries back to debt sustainability and put them on a path to achieving development and climate goals;
- Private bondholders and commercial creditors grant debt reductions commensurate with public creditors; and
- International financial institutions (IFIs) provide credit enhancement to lower the cost of capital for a green and inclusive recovery in countries that are not in debt distress but that lack fiscal space.
Issued in April 2023, the report is an output of the Debt Relief for a Green and Inclusive Recovery (DRGR) Project, which is working in partnership with policymakers, thought leaders, and civil society to formulate “systemic approaches to resolve the debt crisis and advance a just transition to a sustainable, low-carbon economy.” [Publication: Debt Relief for a Green and Inclusive Recovery: Guaranteeing Sustainable Development] [Policy Brief] [Press Release]