V20 Debt Review: An Account of Debt in the Vulnerable Group of 20 — 3rd Edition

Climate vulnerable economies have launched ambitious national plans and strategies to achieve prosperity while mitigating climate shocks, building resilience and powering their economies with clean energy. Resource mobilization will be critical for these efforts. However, members of the Vulnerable Group of 20 (V20), comprising 74 economies vulnerable to climate change, face significant obstacles to resource mobilization including high costs of capital, dwindling official development assistance budgets and tight domestic fiscal constraints.

A new debt review by the V20 and the Boston University Global Development Policy Center takes stock of the sovereign debt landscape over the last 25 years for V20 members, finding that high debt service payments force members to make difficult decisions between scaling up investments in productive areas and meeting their debt service obligations. 

The authors find that restructuring V20 members’ external debt service payments could open up space for investment in climate, social and development priorities. If V20 creditors extended debt repayment periods from five to 40 years, they could provide countries with essential breathing room. Extending repayment periods in combination with lowering interest rates could reduce the V20’s debt repayment burden in addition to the net present value of their debt.

Key findings:

• The V20’s total external sovereign debt stock amounted to $1.01 trillion in 2023, with multilateral development banks (MDBs) forming the largest creditor class at 40 percent.
• V20 members are spending roughly four times more on debt service payments than on the required climate investment needs and are expected to pay $746 billion in debt service payments over 2025-2031.
• Sixteen countries spent more than 20 percent of government revenue on external sovereign debt service payments in 2024.
• Between 2020-2022, 12 V20 countries spent more on interest payments than on education, and 16 countries spent more on interest payments than on health, with eight countries spending more on interest payments than on health and education combined.
• A 40-year extension for debt repayments without an interest rate reduction would decrease the V20’s debt service obligation by $267 billion between 2025-2031. A 40-year debt repayment extension coupled with an interest rate reduction to 1.3 percent would lower the V20’s debt service obligation by $454 billion over the same period.

Countries in debt distress need predictable, comprehensive and meaningful debt relief to mount economic recovery. As time is of the essence when it comes to building resilience, the sovereign debt architecture needs to be urgently reformed to ensure it can support efforts to spur growth, accelerate climate action and help end the climate-sovereign debt doom loop.