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V20 Debt Review: An Account of Debt in the Vulnerable Group of Twenty

Emerging markets and developing countries (EMDCs) face multiple crises at the same time: while still contending  with  the COVID-19 pandemic, they are also affected by the ramifications of  Russia’s  war in Ukraine. Even prior to this, however, a debt crises loomed in the Global South.

The Vulnerable Group of 20 (V20)  is an initiative  of 55 climate vulnerable developing countries, and they are at the epicenter of the climate and debt crises  which threaten their ability to mobilize the necessary resources to build resilient and low-carbon economies.

Prior to the 2021 United Nations Climate Conference in Glasgow (COP26), the finance ministers of V20  countries released a statement calling for a global debt restructuring scheme that would link debt relief to climate and development goals.

In partnership with the V20, the Boston University Global Development published a  new policy brief by Luma Ramos, Rishikesh R. Bhandary, Kevin P. Gallagher and Rebecca Ray that provides a detailed look on the scale, composition and distribution of the V20’s debt profile.

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No Time for Lost Decade

A Call by DRGR Co-author Kevin P. Gallagher, Boston University

Fallout from the COVID-19 pandemic and Russia’s war in Ukraine will require large scale sovereign debt restructuring to prevent another lost decade of development for many emerging markets and developing countries; during the same ten years they urgently need to mobilize trillions of dollars to combat and adapt to climate change.

Just before the Russian invasion of Ukraine, the World Bank sounded the alarm that fiscal and monetary tightening in the advanced economies could lead to another sudden stop in capital flows to emerging markets and developing countries, followed by capital flight, exchange rate depreciation, and debt crises.

War only makes matters worse, as many emerging market and developing countries will suffer from skyrocketing oil, gas, and grain prices. Worse still, a default on Russia’s or Ukraine’s bonds could amplify that same cycle of depreciation and crisis.

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Provide Debt Relief for a Green and Inclusive Recovery

SOAS ICOP Policy Briefing and Podcast by DRGR-author Ulrich Volz

In line with recommendations for a green and inclusive recovery developed by an international team of economists, DRGR-author Ulrich Volz, Director of the Centre for Sustainable Finance at SOAS, urges the UK government, host of COP26, to propose urgently needed steps. Read more in the SOAS ICOP Policy Briefing or listen to the related 5-minute podcast.

Many developing countries, including Small Island Developing States, are suffering a triple crisis: debt, Covid-19, and climate change. UNDP estimates that close to US$1.1 trillion is due in debt service payments from developing and emerging countries in 2021 alone, and that 72 countries are at risk of external debt distress this year. Servicing this high debt undermines their ability to invest in climate adaptation despite an urgent need to scale-up investment in climate resilience.

There is a danger that vulnerable developing countries will enter a vicious circle: greater climate vulnerability raises the cost of debt, which further diminishes the fiscal space for investment in climate resilience, which further increases climate vulnerability and debt.

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V20 issues Statement on Debt Restructuring

V20 Statement on Debt Restructuring Option for Climate-Vulnerable Nations
STATEMENT BY THE V20 PRESIDENCY

The V20 Group are the finance ministers of the Climate Vulnerable Forum (CVF). The CVF encompasses 48 countries with 1.2bn people. Ahead of COP26, the V20 has issued a statement on Debt Restructuring that draws upon the proposal “Debt Relief for a Green and Inclusive Recovery (see our 3-minute video for a quick explanation).

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10-Minute Explainer Video

Debt Relief & The Poorest Countries With Stephany Griffith-Jones

The World Bank and IMF are likely to announce a new debt relief initiative at COP26, tying debt relief to Green investment. At the Centre for the Study of Financial Innovation (CSFI), DRGR-author Stephany Griffith-Jones explains our proposal as an alternative based on the Brady Plan that helped Latin America in the 1970s/80s, in which creditors would swap existing debt for guaranteed debt (with a haircut).

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A Debt Relief Plan for Green Recovery

In the “Breakingviews” section at Reuters, our co-authors Shamshad Akhtar and Ulrich Volz write about the deceptive calm and misplaced optimism in debt markets. They point out the enormous hurdles that developing and emerging economies face in recovering from the COVID-19 pandemic and meeting key climate and development goals at the same time.

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UNDP Discussion on DRGR-Proposal (Video)

On February 24, UNDP hosted an online-discussion on our proposal for Debt Relief for a Green and Inclusive Recovery. Read the full announcement here.

Three of the report authors, Shamshad Akhtar, Stephany Griffith-Jones, and Ulrich Volz presented its key elements and calls for action.

They were then joined by the UNDP colleagues

  • Luis Felipe Lopez Calva (UN ASG and UNDP Director, RBLAC),
  • Celine Moyroud (UNDP Resident Representative, Lebanon) and
  • Raymond Gilpin (Chief Economist, UNDP Africa).

The discussion was moderated by George Gray Molina (GPN Chief Economist, UNDP). 

Full Video Recording:

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Statement on Debt Relief for a Green and Inclusive Recovery

The following Statement on Debt Relief for Green and Inclusive Recovery is supported by 23 former Central Bank Governors and former Finance Ministers from around the world. The statement calls on the G20 to enact a Debt Relief for a Green and Inclusive Recovery Initiative that requires bilateral, multilateral,and private sector debt relief on a grand scale, analogous to the Highly Indebted Poor Countries Initiative.

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The G20 Debt Plan Does Not Go Far Enough

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.

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Gordon Brown’s Keynote at the Launch of the Report

Transcript of the video provided by Gordon Brown, United Nations Special Envoy for Global Education and former Prime Minister of the United Kingdom, for the launch of the report “Debt relief for a Green and Inclusive Recovery”

This conference today is of utmost importance, and in the month that we have found that we have an American president committed to net carbon zero by 2050 and a Chinese president committed to net carbon zero by 2060, this meeting is of great global significance as we fashion the new building blocks to take us there.