Developing Countries Need Debt Relief to Act on Climate Change

Published on : 25.01.24

By: Ishac Diwan,  Vera Songwe,

Developing nations stand at a critical juncture and need short-term relief to unlock climate action. The Finance for Development Labanticipates a daunting "debt wall" for at least 20 low- and lower-middle-income countries, with substantial redemptions set to mature in 2024 and 2026.

Although it may seem straightforward, injecting more money into countries struggling with debt can prove inefficient as the funds are prone to leaking to other creditors. A clear distinction between liquidity constraints and solvency issues is crucial as it has profound implications for shaping effective policy responses. The international community must recognise that addressing the liquidity crisis is a strategic imperative for achieving global sustainability goals.

In this opinion, Ishac Diwan and Vera Songwe propose a Liquidity Bridge, building on the earlier Debt Service Suspension Initiative (DSSI), to address short-term debt concerns for countries facing liquidity constraints and accelerate the path to green growth.