A proposal by Ulrich Volz, Shamshad Akhtar, Kevin P. Gallagher, Stephany Griffith-Jones, Jörg Haas and Moritz Kraemer.
In November 2020, we put forward a proposal for a Debt Relief for a Green and Inclusive Recovery – a call for an ambitious, concerted, and comprehensive debt relief initiative. We have argued that the option for debt relief should not only apply to low-income countries, as is the case with the Common Framework, but also to middle-income countries that have been hit hard by the pandemic, with dramatic increases in extreme poverty.
Importantly, our proposal has highlighted the importance of linking debt restructuring with the need to build resilience and a commitment by creditors and debtor countries alike to align newfound fiscal space with globally agreed climate and development goals.
In this report, we develop this proposal for comprehensive debt relief for both low-income and middle-income countries that need it by both public and private creditors, oriented around a green, inclusive recovery, further.
Our proposal emphasises the need to enhance the Debt Sustainability Analysis carried out by the IMF and the World Bank to account for climate risks and essential spending needs to scale up investment in climate resilience and the Agenda 2030.
To facilitate restructuring negotiations where needed and incentivise private creditors to participate in debt relief and bear a fair share of the burden, we propose a Guarantee Facility for Green and Inclusive Recovery managed by the World Bank. This Guarantee Facility would provide credit enhancements for new bonds that would be swapped for old debt.
Governments receiving debt relief would develop their own Green and Inclusive Recovery Strategy and commit to reforms that align their policies and budgets with the 2030 Sustainable Development Agenda and the Paris climate agreement.
Some portion of the restructured repayments would be channelled into a Fund for Green and Inclusive Recovery or an already existing national fund that could be used for this purpose. The government would be free to decide how to spend the money from this Fund, as long as it is demonstrably helping a green and inclusive recovery and contributes to achieving the SDGs.
It is time for the G20 to step up and provide all countries with the opportunity to pursue a green, inclusive, and resilient recovery. Extending and pretending will not do. We cannot afford a delay and replay of past debt crises.