V20 Debt Review: An Account of Debt in the Vulnerable Group of 20 – 2nd Edition

The global community’s efforts on climate change have yet to demonstrate the urgent need for immediate action.

However, there is now a growing convergence that increasing levels of sovereign debt are inhibiting bold and necessary action on climate and development.

The Vulnerable Group of 20 (V20) Ministers of Finance, comprising 68 climate vulnerable economies, are confronting multiple, intersecting crises from the frontlines of climate change.

A new debt review by the V20 and the Boston University Global Development Policy Center captures the external sovereign debt profile of V20 members, finding that high levels of external sovereign debt are directly crowding out the ability of V20 governments to invest and achieve climate and development goals.

Climate vulnerable economies have put forward ambitious Climate Prosperity Plans, nationally determined contributions, and national plans and policies, but the authors show that, without a supportive macroeconomic environment, undergirded by an effective sovereign debt architecture, not only will the goals in the national plans remain a distant reality, but the intensifying nature of climate change will roll back decades of progress made in development.

Key findings:

• The V20’s total external public and publicly guaranteed debt stock amounts to $946.7 billion.
• External debt servicing is expected to hit a peak of $122.1 billion in 2024.
• V20 members are expected to pay $904.7 billion in debt service over 2022-2030.
• Eight countries spend more than 20 percent of their tax revenue servicing external debt: Bhutan, Ghana, the Maldives, Benin, Senegal, Cote d’Ivoire, Tunisia and Mongolia.
• Based on the data available, only Costa Rica, Côte d’Ivoire, the Philippines and Viet Nam are estimated to be able to borrow from international capital markets on a sustainable basis, defined as economic growth rates exceeding borrowing costs.
• Another 18 countries have unsustainable borrowing costs in international capital markets and would face unsustainable debt levels if they borrowed on those terms.

The V20’s debt profile illustrates the need for a multi-pronged approach to tackle sovereign debt distress. Debt solutions must involve comprehensive creditor participation, be ambitious in scope and scale, and be deployed rapidly.