This month, the Debt Relief for Green and Inclusive Recovery (DRGR) Project released a report that outlines just how close the world is to achieve the goals of the United Nations 2030 Agenda for Sustainable Development (SDGs) and the Paris Agreement on climate change. According to the report, the only feasible path toward achieving these climate goals on time would be for emerging market and developing countries (EMDEs), excluding China, to spend $2 trillion dollars every year as well as “mobilize” an additional trillion from external sources.
Unfortunately, 47 EMDE nations (with a total population of over 1.1 billion people) out of 66 will face insolvency in the next five years if they increase investment to meet climate and development goals. Indeed, debt levels for EMDEs have more than doubled since 2008, and each year sets a new record in terms of being the costliest for debt servicing.
The report notes that over half of the ENDEs now spend more on servicing foreign debt than they do on health or education, and an estimated 47 EMDEs will meet or surpass the IMF’s debt solvency thresholds within the next five years, should they allocate more funds to meet the sustainable development goals.
Time is running out to borrow more money
According to the DRGR Project report, what EMDEs need is the ability to “mobilize” $3 trillion dollars every year until 2030, $2 trillion of which is to be sourced domestically and an additional $1 trillion coming from external sources. Compared to all official development assistance (ODA) worldwide, which totaled just $223 billion in 2023, these are titanic amounts of funding.
See also: 2023 global ODA spend inched up with lion’s share going to Ukraine
The authors of the DRGR Project state that “the only viable pathway for raising the financing required is through a combination of new liquidity and an increase in concessional financing,” which translates to external creditors (both public and private) offering substantial debt forgiveness in combination with an increase in ODA in the form of concessional financing.
Call to action
Despite what many would see as impossibly overwhelming obstacles to achieving any measure of success by 2030, the DRGR Project believes that there is a three-pillared approach that may yet unlock the necessary $3 trillion in annual funding needed to combat climate change and invest in sustainable development.
First, existing Debt Sustainability Analysis (DSA) standards used by multilateral lenders like the World Bank and IMF need to be “enhanced and calibrated” to allow EMDEs nations to borrow more money. Secondly, all classes of creditors (public, multilateral, and private) need to adhere to the newly “enhanced and calibrated” DSAs to provide more loans to indebted countries, and third, creditworthiness requirements should be “enhanced” to allow EMDEs not currently facing insolvency issues to borrow more money.
On top of these three proposed reforms, the DRGR report believes that debt relief for EMDEs will lead to a “green, inclusive, and high-growth trajectory.” The United Nations too has warned that debt relief is urgently needed for the world’s poorest countries, and multilateral creditors such as the IMF and World Bank have been working for decades to find sustainable ways to ease poorer countries’ external debt servicing burdens. But such complex operations require a lot of time, coordination, and agreement from policymakers and stakeholders.
The report’s authors called on the international community “to change the course of action and prevent a default on development”, highlighting that “time is of the essence in granting the fiscal space to invest in climate and development goals”.
The DRGR Project is a collaboration between the Boston University Global Development Policy Center, Heinrich-Böll-Stiftung, and the Centre for Sustainable Finance at SOAS, University of London, and was formed in 2020 to engage with policymakers, thought leaders, and civil society to promote “evidence-based policy dialogue” for sustainable development.
