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Debt Relief for a Green and Inclusive Recovery
By Ulrich Volz, Shamshad Akthar, Kevin Gallagher, Stephany Griffith-Jones and Jörg Haas - Heinrich Böll Foundation; the Center for Sustainable Finance at SOAS, University of London; and Boston University’s Global Development Policy Center , November 16, 2020
The report “Debt Relief for Green and Inclusive Recovery” published by the Heinrich Böll Foundation; the Center for Sustainable Finance at SOAS, University of London; and Boston University’s Global Development Policy Center 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 reforms that 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.
Read Background Briefing #2 (PDF).
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