Emerging countries will pay a record $400 billion to service external debt this year, and nearly four dozen cannot spend the money they need for climate adaptation without risking default in the next five years, according to a report spearheaded by Boston University released on the eve of the IMF/World Bank spring meetings.
The study conducted by the Debt Relief for Green and Inclusive Recovery Project (DRGR) identifies 47 developing countries that would breach external debt insolvency thresholds set by the International Monetary Fund (IMF) in the next five years if they invested the necessary amounts to hit 2030 Agenda and Paris Agreement goals.
Additionally, 19 developing countries need financial liquidity to meet spending targets with external assistance.
The report called for a global financial overhaul, debt forgiveness for the most vulnerable countries and an increase in affordable finance and credit enhancements.
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The DRGR Project, a collaboration between the Boston University Global Development Policy Center, Heinrich-Böll-Stiftung, the Centre for Sustainable Finance, SOAS and the University of London, underscores the critical need for reform in the IMF’s debt sustainability assessments.
These assessments, pivotal in determining debt relief, have been accused of being overly pessimistic by private creditors, influencing policy decisions.
If the IMF determines a country can handle an amount of debt that is too high, it must incorporate climate spending needs — as well as buffers to weather shocks, from climate to economic crises to pandemics, the report advocates.
“If the international community does not act in a swift and uniform manner to provide comprehensive debt relief where needed alongside new liquidity, grants and concessional development finance, the costs of inaction will be exorbitant,” the report added.
