“The Time to Act is Now”: Debt Relief for a Green and Inclusive Recovery

A report launched today in a public webinar calls on the G20 to move beyond the Common Framework for Debt Treatments announced last week and require public and private creditors to provide a substantial debt cut to a broad set of low- and middle-income countries, in exchange for a commitment to use the fiscal space for a green and inclusive recovery.

The launch event featured speeches from former UK Prime Minister Gordon Brown and current Prime Minister of Barbados, Mia Mottley:

The report “Debt Relief for Green and Inclusive Recovery,” published by the Global Development Policy Center, Heinrich Böll Foundation and the Center for Sustainable Finance at SOAS, University of London, proposes substantial debt relief by public and private creditors for low and middle-income countries with unsustainable debt burdens, in order to provide fiscal space for investment in COVID-19-related health and social spending, climate adaptation and green economic recovery strategies.

At the launch, former UK Prime Minister Gordon Brown highlighted that the report is “showing how we start to build an environmentally sustainable future out of the case of covid and out of the world, disfigured not just by pandemics, but by pollution and by poverty. (…) And I’m here to say that by relieving the debts of the poor and releasing the money to address climate change, we can start to change our world. Indeed, it is solving one of the greatest injustices of our time, the injuries and pain caused by un-payable debt that we make possible one of the greatest advances of our time, the achievement of what are rightly called the sustainable development goals.”

Prime Minister Mia Mottley said, “COVID-19 has been an enormous leveler, and they say as we know, pride cometh before the fall. This is not time for hubris… Good policy choices in a disaster don’t come about by accident and unprecedented times require unprecedented responses.” She further announced, “We join the call today for debt relief to be extended beyond the public to the private sector and beyond the poorest countries to middle income countries. Simply put, now is the time [to act].”

The event also featured commentary from noted experts and report authors:

Kevin P. Gallagher, report author and Director, Global Development Policy Center; Professor, Pardee School of Global Studies, Boston University: “It is essential that debt relief go beyond the poorest countries, have compulsory private sector involvement, and be geared to a green and inclusive recovery.”

Ulrich Volz, report author and Director of the Centre for Sustainable Finance, SOAS, University of London: “Calls on governments to ‘build back better’ and foster a green recovery will be meaningless for many developing countries if they are suffocating in debt. To put governments of heavily indebted developing countries into a position to invest in sustainable recoveries and boost resilience to climate change, a debt restructuring will be inevitable.”

Shamshad Akhtar, report author and Former Governor of the State Bank of Pakistan and Former Finance Minister of Pakistan: “The surge in debt in the low and middle income countries in the midst of the novel pandemic calls for an astute shift in debt relief policy and frameworks to exhibit solidarity in the global community to lay the foundation for a prosperous future and safe planet for the next generation. Debt relief should be holistically structured and the debt servicing funds released by the public and private creditors be wisely deployed by the borrowers. Besides immediate economic and social relief, it’s time for size-able investments in climate action as it has not only aggravated vulnerabilities, but climate change respects no borders. It is time to lift global cooperation on climate change by converting debt into a sustainable financing vehicle.”

Stephany Griffith-Jones, report author and Financial Markets Program Director, Initiative for Policy Dialogue, Columbia University: “History teaches us that insufficient and too late debt relief can lead to lost decades for development. This is why our initiative for debt relief where resources saved from debt servicing would be channeled to a green and inclusive recovery is so crucial. The time to act is now.”

Barbara Unmüssig, President, Heinrich Böll Foundation: “The partial debt relief endorsed last Friday by the G20 and the Paris Club is a highly welcomed first step. But considering the dimensions and simultaneity of the global debt-, social and climate crisis, focussing only on the poorest countries falls too short in three decisive aspects: First, specifically middle-income countries need a decisive debt cut, as 80 percent of those fallen into extreme poverty in the pandemic live in these middle-income countries. Moreover, at this point middle-income countries should not opt for a high-emissions driven recovery. Instead they need to take new socially and ecologically sustainable development paths. Second, a debt cut needs to include a mandatory participation of the private sector. And third, the G20 seems to have missed the chance to think together fitting strategies for fighting the social strains of the pandemic with a new set of solutions for the climate- and biodiversity-crisis.”