Debt Relief for Green and Inclusive Recovery

This paper reviews the main features of and experiences with the Brady Plan, which in 1989 laid the foundation for the restructuring of the sovereign debt of mainly Latin American countries. It argues that the combination of credit enhancement for restructured debt, moral suasion, and tax as well as regulatory relief to encourage private creditors to participate in debt restructurings may provide a template for addressing today's sovereign debt problems.

Fossil fuel development, in particular oil and gas, promised vast riches in the past. Today it is exposing fossil fuel producers and their creditors to a massive stranded asset risk. Technological disruption with the rapid cost-reduction of renewable energy and storage technologies, in conjunction with the inevitability of increased climate action, are at the root of unprecedented uncertainties over the future of the sector. 

South Africa’s economy, which was already in a precarious state before Covid-2019, has been tipped into full blown crisis by the pandemic. Gross national government debt  is expected to be upwards of 86% within two years. Eskom, which is the country’s state-owned monopolistic and vertically integrated electricity utility, is a key driver of this escalating debt profile and lies at the heart of the economy’s structural challenges. 

This paper outlines some viable options for creating an architecture for a Debt-for-Climate Initiative (DCI). This is intended to enable countries to recover from the pandemic.

Low-income countries (LICs) are suffering from triple distresses: the mortal impact of Covid-19, increasing debt burdens, and climate change impacts. This paper brings the debt-for-adaptation swap into play as an alternative source to restore countries' ability to act and be resilient to climate change.

This paper examines the experience with debt-for-development swaps and major debt relief processes in order to draw some lessons that could help shape a debt-for-climate initiative (DCI).