Secretary-General's Policy Report on Debt and solutions

But long-term economic scarring effects and an uneven recovery, potentially leading to a sharply diverging world, are increasingly coming into focus. The severe fiscal impacts of the crisis are triggering debt distress in a growing number of countries and severely limit the ability of many countries to invest in recovery, climate action, and the sustainable development goals (SDGs).

 Such fiscal impacts, along with the rise of vaccine nationalism, have also resulted in developing countries facing enormous difficulties in accessing vaccines against COVID19, which threatens to prolong the recovery period. Unless we take decisive action on debt and liquidity challenges, we risk another ‘lost decade’ for many developing countries, putting the achievement of the SDGs by the 2030 deadline definitively out of reach.

In my April 2020 policy brief on debt, I proposed a three-pronged approach to address impending debt and liquidity issues caused by the pandemic in developing countries:2 i) a debt standstill to provide immediate breathing space for all countries that need it; ii) additional, targeted debt relief for countries that require support beyond a temporary suspension of debt service; and iii) addressing structural deficiencies of the international sovereign debt architecture to prevent defaults from leading to prolonged financial and economic crises in the future. The international community’s response was significant, but not sufficient. Initial measures included monetary easing, access to fresh concessional financing, a suspension of debt service payments on bilateral debts, and targeted but limited relief on some multilateral debt. More action is needed.

The purpose of this policy brief is to take stock of the global policy response since April 2020, assess remaining gaps and challenges for their implementation, and propose updates to the original recommendations in light of developments over the last year.