SOAS University of London

New report demands G20 to go beyond recent announcements and tackle the escalating debt, pandemic and climate crisis.

16 November 2020

A report launched today calls on the G20 to move beyond the Common Framework for Debt Treatments announced last Friday 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 use some of the newfound fiscal space for a green and inclusive recovery.

The report “Debt Relief for Green and Inclusive Recovery” published by the Heinrich Böll Foundation; the Centre for Sustainable Finance at SOAS, University of London; and Boston University’s Global Development Policy Centre 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. Private creditors participating in the debt restructuring would swap their old debt holdings with a haircut for new “Green Recovery Bonds”.

This proposal goes further than the new common framework endorsed by the G20 and Paris Club last Friday, as it would ask for mandatory participation from the private sector. Second, it would include middle-income countries with unsustainable debt burdens. Thirdly, the proposed Debt Relief for Green and Inclusive Recovery Initiative is geared to achieving the Paris Agreement on climate change and the 2030 Agenda for Sustainable Development, which the common framework is not.

Governments receiving debt relief would need to commit firmly to align their policies and budgets with the 2030 Agenda for Sustainable Development and the Paris Agreement. For these countries to have continued access to international capital markets, any new debt issued by them could receive Brady-type credit enhancement – suitably adapted to current circumstances – in exchange for committing to Sustainable Development Goals-aligned spending items.

The report will be launched in a public webinar on Monday, November 16, with appearances from the Hon. Mia Amor Mottley, Prime Minister and Finance Minister of Barbados, and Former UK Prime Minister Gordon Brown.

At the report launch, former UK prime minister Gordon Brown highlighted that the report is "showing how we start to build an environmentally sustainable future out of the case of covid and out of the world, disfigured not just by pandemics, but by pollution and by poverty. (...) And I'm here to say that by relieving the debts of the poor and releasing the money to address climate change, we can start to change our world. Indeed, it is solving one of the greatest injustices of our time, the injuries and pain caused by unpayable debt that we make possible one of the greatest advances of our time, the achievement of what are rightly called the sustainable development goals."

Barbara Unmüssig, President of the Heinrich Böll Foundation: “The partial debt relief endorsed last Friday by the G20 and the Paris Club is a highly welcomed first step. But considering the dimensions and simultaneity of the global debt-, social and climate crisis, focussing only on the poorest countries falls too short in three decisive aspects: First, specifically middle-income countries need a decisive debt cut, as 80 percent of those fallen into extreme poverty in the pandemic live in these middle-income countries. Moreover, at this point middle-income countries should not opt for a high-emissions driven recovery. Instead they need to take new socially and ecologically sustainable development paths. Second, a debt cut needs to include a mandatory participation of the private sector. And third, the G20 seems to have missed the chance to think together fitting strategies for fighting the social strains of the pandemic with a new set of solutions for the climate- and biodiversity-crisis.”

Ulrich Volz, Director of the Centre for Sustainable Finance at SOAS, University of London: “Calls on governments to ‘build back better’ and foster a green recovery will be meaningless for many developing countries if they are suffocating in debt. To put governments of heavily indebted developing countries into a position to invest in sustainable recoveries and boost resilience to climate change, a debt restructuring will be inevitable.”

Kevin P. Gallagher, Director of the Global Development Policy Center and Professor at the Pardee School of Global Studies, Boston University: “It is essential that debt relief go beyond the poorest countries, have compulsory private sector involvement, and be geared to a green and inclusive recovery.”

Shamshad Akhtar, Former Governor of the State Bank of Pakistan and Finance Minister of Pakistan: “The surge in debt in the low and middle income countries in the midst of the novel pandemic calls for an astute shift in debt relief policy and frameworks to exhibit solidarity in the global community to lay the foundation for a prosperous future and safe planet for the next generation. Debt relief should be holistically structured and the debt servicing funds released by the public and private creditors be wisely deployed by the borrowers. Besides immediate economic and social relief, it’s time for sizeable investments in climate action as it has not only aggravated vulnerabilities, but climate change respects no borders. It is time to lift global cooperation on climate change by converting debt into a sustainable financing vehicle.”

Stephany Griffith-Jones, Financial Markets Program Director at the Initiative for Policy Dialogue, Columbia University: “History teaches us that insufficient and too late debt relief can lead to lost decades for development. This is why our initiative for debt relief where resources saved from debt servicing would be channeled to a green and inclusive recovery is so crucial. The time to act is now.”

The report can be downloaded online.

More information on the initiative and the project.