Mainstreaming debt swaps for sustainable development: enhancing the G20 common framework for debt treatments

Abstract

Many emerging markets and developing economies are burdened with high debt stocks and lack the fiscal space to meet their climate, biodiversity, and sustainable development goals (SDGs). Most of these countries are rich in natural resources and biodiversity hotspots that function as global public goods. One potential solution is to mainstream SDGs debt swaps. A creditor allows debt relief and the debtor commits part of the savings toward investments in achieving climate, nature and other SDGs goals, while also improving their fiscal position.

Based on experience from the Heavily Indebted Poor Countries Initiative, SDGs debt swaps could mobilize over US$105 billion from debt negotiation and US$329 billion from new debt issuances. To date, implementation has been limited and hindered by high transaction costs, institutional challenges, and lack of transparency. The few swaps that have taken place have been small in comparison with the total need across highlyindebted countries and were all in upper-middle or high-income countries where the debt involved was privately held and was bought back via auctions. For low and lower-middleincome countries whose main creditors are bilateral and multilateral, that approach is less feasible and complex, costly and asymmetric negotiation processes will be needed, which may limit the scalability of these swaps.

The G20 has an opportunity to call for enhancing current efforts to address debt through a complementary Common Framework that integrates the broader concept of SDGs debt swaps, establishes guidelines, and supports their implementation to facilitate and promote fair negotiations.