Sovereign Debt Architecture

Sovereign debt in emerging markets and developing economies was estimated to be at $3.8trn finance for climate projects.

2030 Goals

Identify ways to make treatments under the Common Framework more comprehensive and deliver more upfront sovereign debt relief.
Establish processes for determining country-specific KPIs for debt relief and standardize/scale treatments based on these KPIs.
Extend the IMF-WB Debt Sustainability Framework to account for forward-looking & climate scenarios and the impact of new financing mechanisms.
Ensure appropriate treatment of climate risk in sovereign debt credit rating evaluations.

Status
No progress

Current debt relief efforts often fail to account for specific country contexts, particularly as these relate to the need to decarbonize and climate impacts, which can increase the debt spiral. This includes aligning credit ratings to account for climate impacts.
The Global Sovereign Debt Roundtable (GSDR), under the auspices of the G20, IMF, and World Bank, provides a platform for building common understanding among public and private stakeholders in sovereign debt restructurings.
At the third GSDR in October 2024, the IMF and World Bank proposed a three-pillar strategy to help low-income and vulnerable middle-income countries manage liquidity challenges with tailored policies and instruments. The three pillars focus on:

1) Structural reforms and capacity development to enhance domestic resource mobilization,
2) Securing external financial support from international institutions, and
3) Reducing debt servicing through risk-sharing instruments. Progress is already advanced on Pillars 1 and 2.
However, there has been minimal advancement in implementing the Common Framework, which requires significant strengthening. The Common Framework, launched in November 2020 by the G20 with support from the World Bank and IMF, aims to coordinate sovereign debt treatments for the world's poorest nations by ensuring timely and equitable restructuring with private creditor participation. However, significant strengthening is needed to address liquidity challenges, enhance information exchange among creditors, and expedite the formation of official creditor committees to accelerate debt resolution.

Relevant Actors & Audiences

Private FIs

International Banks, Institutional Investors, Credit Rating Agencies

Public FIs

Development Finance Institutions, State-owned Enterprises, Sovereign Wealth Funds

Multilateral Development Banks

World Bank

International Organizations

International Monetary Fund

Leading Countries and Alliances

Germany, China, Kenya, Ghana, Chad, Ethiopia, Zambia, G20 Ministries of Finance, IFA WG

Supportive Stakeholders

UN Sustainable Debt Coalition, UN Finance for Development, Sovereign Debt Working Group Sustainability-linked Sovereign Debt Hub