An FP ANALYTICS Issue Brief

Drowning in Debt

Strategies to Overcome the Debt-Development Crisis

The year 2025 marks a critical juncture for global development. With just five years until the 2030 deadline, only around one-fifth of the UN Sustainable Development Goals (SDGs) targets are on track. Record-breaking global temperatures and carbon and fossil fuel emissions demonstrate a lack of progress on climate goals and pledges, with 2024 being the hottest year on record. Additionally, the impacts of the COVID-19 pandemic are still being felt across societies and sectors, not only impeding health outcomes but also reversing development gains more broadly. Many national education systems, for example, are still recovering from the severe disruptions brought on by the pandemic, especially in low-and-middle-income countries (LMICs) where an alarming 70 percent of 10-year-olds struggle with basic reading comprehension. Moreover, disruptions to global food and energy supplies have fueled a persistent cost-of-living crisis.

Amid the convergence of these complex challenges—or, polycrisis—financing for development is under threat, undermining progress on a range of issues from gender equality and environmental conservation to public health and poverty alleviation. Major sources of official development assistance (ODA) are reducing their bilateral and multilateral aid contributions, while many developing economies are facing what the European Network on Debt and Development (Eurodad) calls the worst debt crisis in history. LMICs are spending large shares of their national budgets on debt service payments, rather than investments in basic social services for their populations to longer-term development goals. The combination of these factors threatens to exacerbate trends such as rising inequality, protracted conflicts, and democratic backsliding while making it increasingly difficult for people around the world—and especially in low-income economies—to live a decent life.

Bold action is needed to course correct, and sovereign debt represents one key area where reform is urgently needed to drive equitable development. Calls for widespread sovereign debt relief have emerged from around the world, but it is clear that debt relief alone is not enough to unleash sustainable, long-term growth. A global governance system that enables resilient and just solutions that prioritize sustainable development is urgently needed.

Recognizing the pressing need for global financial reform, this issue brief and two accompanying expert interviews, with Dr. Mahmoud Mohieldin and Dr. Vera Songwe, comprise the first part of a multicomponent project—Global Governance Reimagined—that will be progressively published to coincide with key global convenings in 2025. Focusing on the urgent need for debt relief and reform to unlock resources for sustainable and equitable development, this issue brief launches alongside the 4th International Conference on Financing for Development (FfD4). The brief analyzes weaknesses and inequities in the current global economic governance structure that underpin the debt-development crisis, and illuminates transformative possibilities to overcome this crisis and improve global governance.

Heavy sovereign debt burdens and crippling interest rates threaten the progress of LMICs toward sustainable development targets

As of June 2025, more than half of low-income countries are in, or at high risk of, debt distress, a situation in which a country cannot meet its debt repayment obligations. Sovereign debt stocks have reached historic highs, with African debt stocks more than doubling from USD 283 billion to USD 655 billion between 2012 and 2022. Since 2020, 11 countries have already defaulted on their debt obligations, including Zambia, Ghana, Sri Lanka, and Ethiopia. Structural inequities and inefficiencies in global governance have enabled crippling debt across many LMICs, driven by factors including external capital flows in search of higher yields and the changing composition of creditors. 

Following the 2008 Global Financial Crisis, interest rates in advanced economies were held near zero to stabilize financial markets, causing investors to seek higher yields in developing economies and emerging markets. LMICs—excluding China—had limited sources of capital, weaker credit ratings, and underdeveloped domestic capital markets, which made international bonds an attractive financing source. As a result, many LMICs issued international bonds for the first time and embarked on an infrastructure drive to meet their economic development goals, mostly financed by borrowing from private, bilateral, and multilateral creditors, leading to increases in sovereign debt and heightened exposure to exchange rate and refinancing risks.

Debt vulnerabilities became apparent and intensified at the height of the COVID-19 pandemic, as LMICs increased their borrowing to provide sweeping financial support to households and businesses in the face of economic downturns. Private-sector creditors became risk-averse and reduced their lending as a result of the pandemic, while multilateral development banks (MDBs) significantly increased their financing, including emergency financial programs, to help countries respond to the pandemic. This, coupled with the impacts on the global economy of the war in Ukraine and other geopolitical flashpoints, has contributed to widespread disruptions in trade and supply chains, driving inflation globally to its highest level since 2008. Central banks hiked interest rates quickly to tame inflation, but at the price of increased borrowing costs and pullback of foreign capital from LMICs, compounding their debt burdens, and revealing a global governance system unprepared for a convergence of crises.

Debt Distress Risks Among Low-Income Countries, 2024

Sixty-two economies across Africa, Latin America and the Caribbean, and Asia are at a moderate to high risk of debt distress.

Total Long-Term External Debt Stocks, Publicly Guaranteed, 2023

Private creditors hold the majority of long-term external debt across regions.

Data source: World Bank Debt Sustainability Analysis, and International Debt Report 2024
Note: Debt distress occurs when a country is unable to meet its financial obligations, leading to debt restructuring. Total long-term external debt stocks visualization excludes private non-guaranteed debt and includes IMF credit.

The changing composition of creditors has added new complexity to the global financing landscape. Private creditors, such as bondholders and commercial banks, account for more than half (56 percent) of LMICs’ debt obligations. Unlike multilateral or bilateral loans, private debt often carries higher interest rates, shorter debt repayment periods, and is more vulnerable to exchange rate fluctuations, increasing repayment pressures over time. Moreover, LMICs across Asia, Africa, and Latin America and the Caribbean substantially increased their borrowing from China starting in 2010, reaching a peak of USD 1 trillion in loans in 2021. Similar to private creditors, the terms of China’s bilateral loans often involved relatively higher interest rates and shorter maturities compared to concessional loans by other official lenders, thus increasing the debt servicing costs to LMICs. As China becomes the recipient of the largest volume of debt repayments—projected to reach a record USD 22 billion in repayments in 2025, according to a recent Lowy Institute analysis—Beijing’s participation will continue to be an important factor in the restructuring and relieving of debt burdens.

The rise of non-traditional bilateral lenders and the growing role of private creditors have made it harder to coordinate debt relief, reinforcing the need for global governance reform. Private creditors often lack incentives to participate in sovereign debt restructuring. In the case of Zambia, the first African country to default on its debt obligations during the pandemic, an IDEAs analysis surmised that one major obstacle in securing a restructuring agreement was private creditors’—particularly bondholders—unwillingness to accept “haircuts,” or reductions in debt value to bring debt levels down to a sustainable threshold, delaying resolution of the debt crisis.

In response to the mounting debt crisis, and in an effort to bring together traditional lenders such as the Paris Club, newer bilateral lenders such as China, and private creditors, the G20 adopted the Common Framework for Debt Treatments Beyond the Debt Service Suspension Initiative (DSSI) in 2020 to restructure or renegotiate borrower countries’ debt payment terms. Criticisms of this framework include that it has been too slow and complex, taking nearly two years to reach debt resolution milestones, during which time indebted countries must continue to make repayments, thus discouraging other countries from entering the process. Past restructuring processes in Poland and Nigeria, for example, required seven rounds of deals before all unsustainable debt was resolved.

Similarly, recent debt relief agreements reached or being negotiated under the Common Framework, as in the cases of Chad and Ghana, or outside the Framework, as with Suriname, still require indebted countries to pay an average of 48 percent of their national budget revenue on debt service in the next three years, according to a Debt Service Watch analysis. Each country is also expected to cut government spending by a cumulative 4 percent of GDP over five years. Such agreements are therefore unlikely to create fiscal space for development- or climate-related investment, despite the urgent need for such action. Years after the COVID-19 pandemic both precipitated an increase in sovereign debt and hindered timely repayment, countries are still struggling to pay off debts incurred years ago. In 2023, LMICs’ debt servicing costs (principal plus interest payments) reached a record USD 1.4 trillion, with LMICs spending 3.7 percent of their gross national income servicing debt.

Given the magnitude of debt and the shortcomings of approaches tried in recent years, the global monetary and financial system is increasingly seen as not fit for purpose, particularly by global civil society organizations. The current system places significant risk onto low-income and developing economies in need of support and diverts resources away from urgent economic, development, and social priorities. The Debt Service Watch estimated that in 2023, spending on debt service, both principal and interest payments, among countries was 2.5 times more than education spending, four times more than health spending, and 11 times more than social protection spending. These figures translate to billions of people living in countries that were spending more on interest payments for debt than on health care or education. There is a growing tradeoff between repaying creditors and meeting development needs—a debt-development crisis—limiting the ability of governments to deliver core public goods.

High debt burdens that crowd out investments in sustainable development impinge on human rights. Dr. Attiya Waris, UN Independent Expert on foreign debt, other financial obligations, and human rights, emphasized that when countries are highly indebted, they lack the resources necessary to guarantee human rights, such as access to food, water, and health care. This impact is especially acute for women and girls. The Nawi Afrifem Collective highlights that reductions in essential public services increase the unpaid care burden on women and limit their access to health facilities and schooling, further entrenching gender inequality. In addition to social spending, a World Bank report found that increasing debt service could take away spending from the agriculture sector, which employs most of the world’s poor—the majority of whom are women—in low-income countries, and thus could have detrimental effects on poverty alleviation.

High debt burdens also threaten progress on national climate action plans and toward the 2015 Paris Agreement ambitions. LMICs are increasingly vulnerable to climate-related risks, facing a vicious cycle of frequent environmental shocks that then push these countries to borrow more to finance disaster response and recovery. This cycle is especially acute for small island developing states (SIDS), over 40 percent of which are at a high risk of debt distress while facing an existential threat from climate change. In 2023, LMICs spent 12 times more on domestic and external debt service than on climate adaptation. In addition, high levels of climate vulnerability and risk of external debt distress have been correlated with state fragility. Unsustainable sovereign debt, combined with climate shocks, could lead to further political and economic instability, deterioration of public trust, displacement, and other challenges.

The Development Costs of Debt

Countries, especially in Sub-Saharan Africa, are spending more on principal and interest payments than on education, health, or social protection.

Data source: Debt Service Watch 2023
Note: Debt service includes principal and interest payments. Social protection spending refers to financial assistance and services provided by governments to alleviate impacts of poverty, unemployment, disability, among others.

Effective debt relief, reform, and restructuring holds transformative potential to unlock resources for, and accelerate sustainable development and climate resilience in, LMICs, and especially in least-developed countries (LDCs). In 2023, for example, UNDP calculated that reversing the global rise in poverty caused by the COVID-19 pandemic, which pushed an estimated 165 million people below the poverty line, would cost the equivalent of just 4 percent of what LMICs spent on public external debt servicing in 2022. Addressing sovereign debt burdens and lowering debt service obligations could therefore re-invigorate progress toward global sustainable development goals and climate-related targets. However, mitigating the threats that today’s debt crisis poses to climate resilience, economic growth, stability and more will require not only urgent debt restructuring and relief but also an overhaul of the international financial architecture.

Reimagining global governance to avoid future debt crises can drive prosperity and well-being, and support dignified livelihoods for all

Today’s debt crisis is not the first and there are important lessons to be learned from recent decades. In 2000, a growing debt crisis was ended as a result of the global Jubilee 2000 campaign, in which USD 130 billion of debt was cancelled in 36 low-income countries, reducing their average debt burden by three-quarters and mobilizing resources for development. Yet in 2024, the IMF classified 35 countries as being in or at high risk of debt distress. Addressing the immediate debt challenges and crises that countries face today without reforming the broader global financial system will not prevent future debt crises. Immediate debt relief and restructuring will only last when accompanied by long-term global governance reforms, enabling not only economic growth but also sustainable development, human dignity, and well-being. Calls for these reforms are widespread and growing within debt justice movements.

Opportunities for reform arise at all stages of the financing process, from the initial assessment of creditworthiness to the agreement of debt servicing terms, to the restructuring or relief of unsustainable debt. Proposals, concepts, and trials of new or adapted approaches to financing for development are underway at all levels of global governance. In addition to traditional actors such as the World Bank and IMF, regional multilateral development banks (MDBs), and major donors and lenders, new actors and stakeholder groups are emerging and demanding a seat at the table in debt relief negotiations. These include the debtor countries themselves, either alone or in coalition, private lenders and creditors, and civil society groups.

At the multilateral level, the newly established UN Expert Group on Debt—a coalition of economists, including former ministers of finance—is currently assessing a wide variety of debt reform proposals, as discussed in Dr. Mahmoud Mohieldin’s contribution to this series. Similarly, bodies such as the G20 Debt Cost of Capital Commission—established as part of South Africa’s G20 Presidency—and the Jubilee Commission—a group of leading economists convened by the Vatican’s Pontifical Academy of Social Sciences (PASS) and Columbia University’s Initiative for Policy Dialogue—have been established to address the high cost of capital and urgent debt-development crises, respectively. Meanwhile, convenings such as the 4th International Financing for Development (FfD4) Conference provide a timely forum for discussion and consensus-building, bringing together representatives from debtor and creditor countries, international financial institutions, and civil society, and to forge pathways to actionable progress.

Adapting creditworthiness and debt sustainability analysis to reflect the development goals of LMICs can avoid debt servicing challenges and long-term insolvency

At the beginning of the financing process, debt agreements are directly informed by assessments of creditworthiness and a country’s long-term debt servicing ability. Identification of financial challenges and the best way to address them is usually undertaken via debt sustainability analysis (DSA), led by the World Bank and the International Monetary Fund (IMF). Analyses of the current debt crisis, such as by the Bretton Woods Project, consistently highlight the need for an overhaul in the approach to DSA, which can be overly optimistic in assessing repayment ability, and often fails to take into account vulnerabilities such as the impacts of climate change and the development and economic goals of debtor countries. Adapting DSA and other creditworthiness analyses could ensure that debt agreements accurately reflect the goals and challenges facing different countries and the global community and reduce the risk of default.

In particular, the integration of a climate lens into DSA will be vital to ensuring that future financial flows are sustainable and fit for purpose, and it has been advocated by the Bretton Woods Project and the Expert Review on Debt, Nature, and Climate—convened by the governments of Colombia, Kenya, France, and Germany—among others. Stock-flow consistent modeling is one example of how to do this, as it takes a future-forward approach to economic modeling and projections that can integrate predicted climatic events and their expected impact on social, economic, and health outcomes. Beyond a climate lens, if the World Bank and IMF are to continue to be responsible for DSA for LMICs, Eurodad, Afrodad, Amnesty Interational, and others have argued that the process will be more effective if the methodology is adjusted to include an assessment of each country’s needs to support the well-being, health, human and gender rights, and education of its population, possibly through a democratic consultation process, or a close working partnership with the relevant ministries of each national government. In addition, assessments need to account for countries’ ability to service external debt amid ongoing global trade tensions, which can disrupt export earnings and reduce foreign currency reserves essential for debt repayment, particularly for low-income countries that hold a disproportionate share of foreign currency-denominated debt.

In addition to more realistic DSAs, reducing the biases in the current methods of assessing creditworthiness could mobilize significant additional funds for development in LMICs, particularly in Africa and the Small Island Developing States (SIDS). An analysis by UNDP estimated that addressing biases in credit rating methodologies could save African countries, for example, USD 74.5 billion annually. To address these biases, some are calling for the adoption of multidimensional vulnerability indicators (MVI) in credit assessments. These include the UN, which adopted a resolution to introduce MVIs for SIDS in 2020, and the leadership of Antigua and Barbuda. MVIs consider more than simply a country’s immediate ability to repay a loan in full, with particular emphasis on climate and disaster vulnerability. The IMF estimates that a one percent increase in climate change vulnerability is associated with a 0.41 percent increase in the likelihood of default. As a result, as the impacts of climate change worsen, integrating MVIs into creditworthiness analysis could keep interest rates for climate-vulnerable countries manageable and reduce their risk of default in the wake of a disaster.

Alongside MVIs, creditworthiness analysis can better reflect the high returns of investments in LMICs, particularly investments in infrastructure, public goods, and climate adaptation, the median return on which can be as high as 18 percent. The African Forum and Network on Debt and Development (Afrodad) notes that current credit assessments downgrade countries’ creditworthiness if they adopt expansionary policies such as tax relief or government spending, for example, following the onset of the COVID-19 pandemic or in pursuit of widespread infrastructure investment. By recognizing the benefits of such policies and the high return on investment that LMICs can provide, new credit assessment methodologies can facilitate sustainable development via multiple pathways at once.

Trust and transparency among all parties are vital to continued debt servicing and to avoiding acute and long-term debt crises

Numerous solutions to the current debt crisis and broader weaknesses of international financial institutions have been proposed. A UN Debt Convention featured prominently in negotiations regarding the FfD4 outcome document, and the Civil Society Financing for Development Mechanism is a major advocate for its inclusion. The Convention is intended to set binding principles for responsible borrowing and lending, establish transparency mechanisms, and enable impartial arbitration of future requests for debt relief and cancellation. Responsible borrowing and lending principles could include the creation of legislation in both borrower and lender countries to mandate transparency in the governance and management of sovereign debts. In addition, civil society groups such as Debt Justice and Eurodad have highlighted the need for evolving legislation in creditor countries to compel private creditors to take part in debt restructuring, relief, and cancellation processes, prevent them from blocking relief deals, and enforce equal treatment of private and official creditors in repayment terms. The U.K.’s Debt Relief (Developing Countries) Bill, introduced in November 2024, is a relevant example of such legislation, as many private creditors are headquartered in the U.K. and thus subject to British law. Similarly, the New York State Legislature’s proposed Sovereign Debt Stability Act seeks to create a sovereign debt restructuring mechanism and legally limit creditors’ recoveries on claims in which the United States would also receive recoveries under a relief agreement. These and other terms could satisfy many of the conditions identified by economists, practitioners, and civil society groups, to support more equitable finance for development, and facilitate greater representation, participation, and leadership of LMICs, emerging market economies, and the countries most at risk of untenable debt service burdens.

Key to long-term debt sustainability will be trust and transparency between all actors in the process. While conditions for lending such as principles for responsible borrowing and lending will support this, it is critical that trust in global governance structures is re-established. Historic inequities and the legacy of colonization undermine trust in international institutions such as the UN, OECD, World Bank, and IMF facilitated by the lack of representation and authority of LMICs and indebted states in their governance. Context-driven, country-led approaches to future financing for development and debt agreements will be vital to re-building trust between parties and avoiding debt default through a sense of shared ownership and responsibility.

Greater transparency will also enable countries struggling with debt servicing and actors seeking to support them—including multilateral development banks and creditor countries—to identify the most realistic and practical approaches to a given challenge. In her contribution to this series, Dr. Vera Songwe highlights the crucial differences between liquidity crises and insolvency crises, noting that some countries seemingly approaching debt crisis need short-term bridge financing rather than long-term debt restructuring or relief that could ruin their credit and hinder future investment and loans. A shared understanding among stakeholders of the specific needs of individual countries in distress is therefore central to effective debt reform and long-term capital mobilization. Those needs may be short-term liquidity, partial or total debt forgiveness, or long-term access to a variety of forms of capital and financing.

Effective debt restructuring and relief requires prioritizing the short- and long-term financing needs of indebted countries, as well as addressing potential vulnerabilities

Countries most affected by, and at risk of, debt distress—LMICs, and countries vulnerable to climate and extreme weather impacts—need to lead and participate in the design, decision-making, and delivery of debt reform and relief efforts, as well as broader changes to the international financial system. One avenue by which indebted countries are increasing their involvement and leadership of debt reform processes is via borrower coalitions or buyers’ clubs. Organizations including the Finance for Development Lab, the African Center for Economic Transformation, and the Institute for Economic Justice have been key to establishing the evidence base for borrower coalitions, and in creating them. The involvement and ownership of indebted countries and borrower coalitions in these processes will be key to long-term financial sustainability and to preventing recidivism and debt default. These coalitions—whether united by regional proximity, geopolitical alliances, or shared vulnerability to threats such as climate change—can create spaces and platforms for developing countries to assert agency and leadership within a global financial architecture that prioritizes the views and needs of high-income countries, and to share replicable practices, knowledge, and technical support. Such coalitions could act as a promising starting point for broader discussions and proposals on how best to reform the global financial system to be more equitable and supportive of climate adaptation and sustainable development.

Proposals put forward by coalitions of indebted countries are seeking to disrupt historical power dynamics and colonial legacies by placing the power to lead and implement debt relief into the hands of those who need capital the most: the indebted countries themselves. These proposals look to address short-term debt burdens and long-term inequities in the global financial system and generally take a model of South-South cooperation, in which countries with high debt support each other’s development and economic goals. The Small Island Developing States (SIDS) debt support service, for example—co-designed in partnership with the International Institute for Environment and Development (IIED)—takes a four-pronged approach to support debt sustainability and climate resilience. These include implementing a debt management process that creates, rather than restricts, fiscal space for SIDS, enabling them to continue to finance sustainable development projects, future protection against climate impacts through insurance and funding mechanisms, resilience investment via new financing mechanisms, and, crucially, legal support to SIDS going through debt restructuring and financial negotiation processes. The emphasis on a SIDS-owned and SIDS-led debt service is critical, as more than 40 percent of SIDS were approaching or in debt distress in 2024, and all SIDS are experiencing outsized climate vulnerability compared to their greenhouse gas emissions and fossil fuel usage.

Similar approaches are also being proposed or trialed in other regions, such as the African Leaders Debt Relief Initiative (ALDRI), led by former leaders of Nigeria, Senegal, Malawi, Tanzania, Ghana, Mauritius, and Ethiopia. Reflecting on their experience of managing international debt burdens and service obligations, the members of ALDRI propose a country-led approach to sustainable growth and debt relief that considers the context and circumstances of each country’s development needs. The ALDRI approach is two-pronged, comprising comprehensive debt restructuring involving all creditors, including private creditors, and lowering the cost of capital for all developing countries to create fiscal space for sustainable development and climate-related investment. Similarly to the SIDS debt support service, the ALDRI proposal prioritizes the involvement and leadership of indebted countries to ensure equitable outcomes.

Cross-regionally, the V20 (part of the Climate Vulnerable Forum, CVF) brings together 74 countries that are highly vulnerable to climate change, representing 1.4 billion people worldwide, to advocate for sustainable financing for development, climate adaptation, and global prosperity. Established in 2015, the V20 promotes the mobilization of increased public and private climate finance, and acts as a forum to exchange best practices for financing climate action. As part of this work, the V20 has created Climate Prosperity Plans (CPP), which lay out medium- and long-term investment plans for climate action, with the goal of identifying projects and programs to implement, and mobilizing blended finance for delivery. At least eight countries, including Haiti, Bangladesh, and Pakistan, have created CPPs as of June 2025. As more countries create CPPs or other investment and financing plans for development, whether through the V20, ALDRI, SIDS group, or other coalitions, these documents can help craft a new approach to development finance and support the broader adjustments in the global financial architecture that are necessary for shared global prosperity.

Looking ahead: Toward equitable international finance in support of sustainable development

Debt justice via relief, restructuring, and reform is a critical aspect of a broader re-imagining of global governance and international finance necessary to safeguard and accelerate sustainable development and people’s prosperity and well-being. The current systems, based on historic inequities and the legacy of colonization, are limited in their capacity to support truly sustainable development in the long-term. Meanwhile a continuation of the status quo risks another debt crisis emerging in the near future.

The approaches to debt reform and financing for development highlighted in this brief represent a few of the promising ideas that global experts and grassroots leaders from across the debt justice movement have put forward. As they seek to further refine and implement approaches to restructuring debt and driving development, relevant stakeholders in the public, private, and multilateral sectors need to:

• Prioritize the voices, perspectives, aspirations, and needs of LMICs, emerging economies, and LDCs in decision-making, standard-setting, and agreement of conditions surrounding debt relief. This effort could include the creation of a permanent seat at the table for representatives from these countries in global governance forums, both existing and future, and serious engagement with borrower coalitions.
• Develop trust and transparency among all stakeholders in the loan-making, debt servicing, and debt restructuring process. In practice, this effort is likely to take the form of increased leadership and decision-making power for emerging economies and LMICs, who have been traditionally under-represented in multilateral decision-making processes due to inequity and a legacy of colonization. In pursuit of this goal, in the lead up to FfD4, the Civil Society Mechanism for Financing for Development has called for the establishment of responsible borrowing and lending principles, agreed by consensus and enforced by a trusted mechanism such as a UN body. These principles could include auditing and assurance standards to ensure that the information provided by all parties is accurate and trustworthy.
• Identify and implement debt restructuring processes that are politically feasible. Both creditor and debtor countries will need to agree to the conditions of any new or adjusted process for debt relief and restructuring, as well as any broader international finance framework, and to trust in its reliability and lack of bias. As a result, it will be critical for proposals to be supported by high-quality, evidence-based research and trustworthy economic and financial modeling to demonstrate the short-, medium-, and long-term impact of debt adjustments, the likelihood of success, and the return on investment for all involved. This work must include, where possible, assessments of the long-term risks to private creditors in the case of widespread default.
• Ensure equitable access to capital for sustainable development and climate mitigation and adaptation strategies, acknowledging the potential return on investment of such work in the long run. This effort could include increasing the role of MDBs and other international financial institutions in providing concessional loans and blended financing, implementing Climate-Resilient Debt Clauses, and adapting creditworthiness assessments to better reflect the long-term development needs of loan-seeking countries, as proposed by the V20 and others.
• Seek to avert future debt crises by implementing tailored, context-driven approaches to debt relief and restructuring for each country and its needs, particularly relating to climate adaptation and resilience, and by reforming the system as a whole. Tailored debt relief will require establishing a shared understanding of the specific challenges and development goals of each country, and collaboration among all parties in the international financial system.

In the forthcoming parts of the Global Governance Reimagined series, FP Analytics and a selection of expert contributors, will explore different facets of financing for international development. Part 2 of the report will focus on the moving beyond development aid in light of the shrinking availability of ODA while Part 3 will examine priorities for reforming international financial institutions. These topics are among many that are relevant to transforming persistent inequities and building a prosperous future for peoples everywhere through the reform of global governance.

By Angeli Juani (Senior Policy and Quantitative Analyst), Isabel Schmidt (Senior Policy Analyst and Research Manager), and Dr. Mayesha Alam (Senior Vice President of Research).

More on Debt Architecture

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Why a One-Size-Fits-All Approach to Global Debt Doesn’t Work

A Q&A with VERA SONGWE, Chair and founder of the Liquidity and Sustainability Facility and co-chair of the Independent High-Level Expert Panel on Climate Finance