Debt, Climate and the Pressing Need for Collaboration: Insights from the 2024 IMF/World Bank Group Spring Meetings

Despite historic debt levels and escalating challenges faced by emerging and developing economies (EMDE), there was little to no progress regarding debt at the annual International Monetary Fund (IMF)/World Bank Group Spring Meetings. However, the discourse at the meetings highlighted the urgent need for innovative solutions and greater cross-border cooperation. Here is an overview of the most important developments.

by Arabella Wintermayr (Editor) & Sarah Ribbert (Project Coordinator)

Dear Reader,

The decisions made at the annual International Monetary Fund (IMF)/World Bank Group Spring Meetings have the potential to carry profound implications for global development efforts, yet solutions to the mounting debt and development crises remained elusive at the 2024 Meetings, which took place in Washington, D.C in mid-April.

Emerging market and developing economies (EMDEs), excluding China, will need to mobilize an estimated $3 trillion by 2030, with $2 trillion of those resources mobilized domestically. At the same moment, however, EMDEs are facing severe constraints, including historic levels of sovereign debt, that are inhibiting their ability to invest in shared climate and development goals.

A new report from the Debt Relief for a Green and Inclusive Recovery (DRGR) Project released ahead of the Meetings performs an enhanced global external debt sustainability analysis (DSA) to estimate the extent to which EMDEs can mobilize the recommended levels of external financing without jeopardizing debt sustainability.

The authors find that of 66 economically vulnerable EMDEs, 47 EMDEs with a total population of over 1.11 billion people will face insolvency problems in the next five years if they seek to ramp up investment to meet climate and development goals.

The report also finds that debt service obligations will reach an all-time high in 2024, with many EMDEs paying more for debt service than on education, health and long-run public service. In an op-ed published ahead of the Spring Meetings, Lawrence H. Summers and N.K. Sing, both members of the Independent Expert Group appointed by the Indian Group of 20 (G20) presidency, showed that nearly $200 billion flowed to private creditors from developing countries in 2023.

What these countries urgently need is debt relief that is part of a package of new liquidity and affordable development finance, alongside reforms to the global financial architecture. This will be vital for climate-vulnerable developing countries, as highlighted by the Vulnerable Twenty (V20) Group of Ministers of Finance in their latest communiqué.

Despite the risk of defaulting on the United Nations 2030 Agenda for Sustainable Development and the Paris Agreement, however, there was little to no progress at the Spring Meetings regarding debt. Still, the discourse at the meetings underscored a significant shift towards prioritizing debt sustainability and relief efforts on the global stage – particularly within international financial institutions and the US government.

This blog provides the insights from the 2024 Spring Meetings with a focus on debt and financing climate and development.

Spotlight on Debt Sustainability and Relief Efforts

At the 2024 Global Development Forum hosted by the Center for Strategic and International Studies, US Deputy National Security Advisor Daleep Singh highlighted the urgency of the debt crisis and the need for greater cross-border cooperation. Additionally, US Department of the Treasury Under Secretary for International Affairs Jay Shambaugh shed light on the multifaceted challenges faced by low- and middle-income countries in his remarks on the US Vision for Global Debt and Development Finance. He argued that countries committed to ambitious development and sustainability goals should have access to financing without facing debt distress. He also drew attention to the ongoing review of the Debt Sustainability Framework for Low-income Countries (LIC-DSF) by the World Bank and IMF, stating that it should “incorporate borrowers’ sustainable finance considerations, including risk adaptation and mitigation costs,” which is a key argument in the latest DRGR Project report.

Similarly, World Bank Chief Economist Indermit Gill provided critical insights into the limitations of the current debt restructuring process in a recent interview with The Guardian. Referencing the G20 Common Framework which has struggled to deliver on debt relief for countries in distress, he said, “The common framework won’t deliver what leaders say it will.”

The DRGR proposal which seeks to improve the Common Framework is in many ways a modern-day version of the Brady plan and the Highly-Indebted Poor Countries (HIPC) Initiative of the 1990s combined, which Gill recommended a source of possible inspiration. The proposal offers a set of incentives and sticks to ensure that the widest possible section of creditors participate in the restructuring and relief process. It is also grounded in an enhanced DSA that is calibrated to account for critical development investment needs, as well as the potential of climate and other shocks. At an official IMF/World Bank Group Civil Society Policy Forum event assessing solutions to the debt crisis, Marina Zucker-Marques, a Researcher for the DRGR Project, presented the proposal.

Key Initiatives at the IMF/ World Bank Group Spring Meetings

A key forum to discuss debt issues and find consensus among different stakeholders is the Global Sovereign Debt Roundtable (GSDR), which is co-chaired by the IMF, World Bank and G20 Presidency. The GSDR met during the Spring Meetings and issued a progress report that expressed the need for enhanced clarity on the principle of comparability of treatment (CoT), or ensuring that all creditors receive fair and comparable treatment, and speeding up the restructuring process. While this is important, more ambition is needed, particularly on how to entice private bondholders to participate in the debt restructuring process, distribute the burden of debt reduction equally among creditors and secure sufficient debt relief to enable countries to meet their development goals. To achieve this, it is crucial to recognize the important role of multilateral development banks (MDBs) in debt. Research shows that, of 19 low-income countries, 14 owe more than 50 percent to multilateral creditors, meaning that to be effective, debt relief negotiations must include MDBs, with care taken to also safeguard their AAA credit ratings.

Among other high-level convenings on debt, the Expert Review on Debt, Nature and Climate officially kicked off at the Spring Meetings with a convening hosted by the Embassy of Colombia. The mission of the group is to “examine necessary reforms, at the national and international levels, to ensure the debt sustainability of developing countries as they seek to increase investment to achieve a climate-resilient, low-carbon and nature-positive structural economic transformation that also allows for greater economic and social development.” The joint initiative by Kenya, Colombia, France and Germany was conceived at the Summit for the Global Financing Pact in Paris in 2023 and is led by two co-chairs: Vera Songwe, former UN Under-Secretary General, and Moritz Kraemer, Chief Economist at LBBW, former Global Chief Ratings Officer of S&P Global and member of the DRGR Stakeholder Advisory Group. DRGR Project Co-Chair Kevin Gallagher, Director of the Boston University Global Development Policy Center is a member of the Expert Review. The group is expected to report recommendations on how to make debt both fiscally and environmentally sustainable by early 2025.

By examining the outcomes of the 2024 IMF/ World Bank Group Spring Meetings, it becomes clear that while substantive outcomes are still lacking, the political discourse is shifting with representatives of international financial institutions increasingly recognizing the need for reform. What is needed now is the will of political decision-makers to harness lessons from the past and embrace innovative solutions that can chart a course towards a more sustainable and equitable future.

Thanks for reading, and until next time.

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