The efforts to support low income countries (LICs) with unsustainable debt burdens do not go far enough, the DRGR authors Kevin Gallagher, Shamshad Akhtar, Stephany Griffith-Jones, Ulrich Volz and Moritz Kraemer argue in a text published on the online presence of the Italian Institute for International Political Studies (ISPI).
Originally published in November 2020 by the Heinrich Böll Foundation; the Center for Sustainable Finance at SOAS, University of London; and Boston University’s Global Development Policy Center, the DRGR report is now also available in Spanish translation.
The report “Debt Relief for Green and Inclusive Recovery” proposes that low and middle-income countries with unsustainable debt burden receive substantial debt relief by public and private creditors, in order to provide fiscal space for investment in Covid-19-related health and social spending, climate adaptation and green economic recovery strategies.
At “Project Syndicate”, the DRGR authors Shamshad Akhtar, Ulrich Volz, Moritz Kraemer and Stephany Griffith-Jones warn against dangerous shortsightedness in sovereign-debt restructurings and suggest steps for comprehensive debt relief oriented around a green, inclusive recovery.
After five years, the cumulative increase in real GDP associated with investments in green energy infrastructure is nearly twice as high as that on spending on non-ecofriendly energy. Findings like these highlight the importance of a post-COVID-19 sustainable recovery not only from an environmental but also an economic perspective.
According to the briefing “A debt pandemic: Dynamics and implications of the debt crisis of 2020”, public debt of developing countries has increased from an average of 40 to over 60 percent of GDP within the last ten years. More than one-third of the increase took place in 2020 alone.
According to a report launched by the Global Recovery Observatory only 18.0% of announced recovery spending can be considered “green” while just 2.5 % of total COVID-induced expenses to date had “positive green characteristics”. These findings once more stress the importance of the DRGR idea.
The “Nature and Climate Sovereign Bond Facility” proposed in a report by Finance for Biodiversity aims to build on investor interest in green debt and create nature-performance bonds and other instruments that align payments with environmental outcomes.
The COVID-19 crisis has come at the worst possible time for humanity. The poorest countries were already struggling to meet their development goals in the face of cyclones, wildfires, and droughts, and the world now has only a decade left to slow down increases in global temperature and sea levels before they become catastrophic, and invest in climate-resilient development.
The DRGR report calls on the G20 calls on the G20 to move beyond the Common Framework for Debt Treatments and to require public and private creditors to provide a substantial debt cut to a broad set of low- and middle-income countries, in exchange for a commitment to a green and inclusive recovery.
Op-Ed by Shamshad Akhtar, Kevin P. Gallagher, Stephany Griffith-Jones, Jörg Haas, Ulrich Volz
With developing countries facing a debt crisis that will only get worse as the COVID-19 pandemic continues, it is already inevitable that massive debt relief will be necessary. The only question is whether it will be designed to address the even larger climate crisis that is approaching.