Debt restructuring for climate vulnerable countries ahead of the COP26
Dear friends,
We hope this email finds you well.
I guess some of you have already seen this statement that the V20 (uniting 48 climate vulnerable countries) released yesterday promoting debt restructuring for climate vulnerable nations.
Their overall demand is on debt support and flexibility, including "debt forgiveness and suppression for highly- indebted climate vulnerable economies facing imminent liquidity crises, as well as Debt for Climate (DFC) swaps for interested middle-and-low-income vulnerable economies where new climate ambition and investments are restricted because of limited fiscal space. More flexibility on debt is required to enable V20 countries to finance climate action".
This is in the lines of what the V20 already included in their Communiqué after the 1st climate vulnerable's finance summit in July this year, as well as what the Bangladesh PM Sheikh Hasina asked for as chair of the Climate Vulnerable Forum (CVF) statement last August in response to the IPCC report.
Also along what Maldives former president, Mohamed Nasheed, ambassador for the CVF, shares in this new interview at The Hindu and shared a few months ago in this other one at Bloomberg. Or what Barbados PM, Mia Mottley, has been stating on a few occasions (the latest at UNCTAD XV).
This new V20 statement goes beyond the previous communications, and makes concrete proposals, including:
- A massive debt restructuring linked to new investment for climate resilience and energy transition, including a WB guarantee for creditors - in the lines of this proposal on "Debt relief for green and inclusive investment" (DRGR) promoted by GDP - BU, CSF - SOAS & Heinrich Boell Foundation.
- It also includes the proposal by the Task Force on Climate, Development and the International Monetary Fund - also promoted by GDP - BU among others -, for the IMF "to play a strategic role through the new Resilience and Sustainability Trust in debt restructuring by providing collateral to guarantee restructured debt"
- It includes the proposal to review debt sustainability assessments and methodology, in order to integrate climate and other sustainability risks.
- It proposes "brady-bond" style incentives for private creditors to participate in the debt restructuring - check also this review of the Brady bonds by the DRGR authors Stephany Griffith-Jones, Kevin Gallagher, and Ulrich Volz. Within this proposal it states that "Positive incentives for private creditor participation in debt restructuring need to be combined with other measures to ensure that private creditors grant debt relief".
- Finally, the statement proposes that countries develop their own "Climate Prosperity Plans" and the figure of an impartial mediator, proposed by
the UN Secretary-General.
As said, the V20 statement goes along the lines of the DRGR presented last year, with some additions (such as the figure of the mediator).
I guess there will be discussions on this proposal, or in general on debt restructuring for climate vulnerable countries, in the next couple of weeks at the COP26. We'll try to keep you updated on any other news around this.
I hope this is helpful.
Best regards
Iolanda
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