The United Nations 2030 Agenda for Sustainable Development covers 17 goals, the 17th of which is “Partnerships for the goals,” namely: Strengthen the means of implementation and revitalize the Global Partnership for Sustainable Development.
Under this major goal, there are 19 targets, the 17.4 of which is “By 2030, assist developing countries in attaining long-term debt sustainability through coordinated policies aimed at fostering debt financing, debt relief and debt restructuring.”Global debt challenges are escalating
Photo: UN Trade and DevelopmentCascading crises and a challenging global macroeconomic environment, characterized by tightening financial conditions, higher interest rates, U.S. dollar appreciation, growth slowdown, and falling commodity prices, have made it harder for developing economies to service their debts and mobilize domestic resources for sustainable development.
The external debt stocks of developing economies reached US$11.4 trillion in 2023, more than double the value recorded a decade ago. Of these, publicly guaranteed debt (PPG) accounted for more than half (51.4% of the total) of long-term external debt. According to the joint IMF-World Bank Debt Sustainability Framework for countries eligible for the Poverty Reduction and Growth Trust, as of February 2024, half of them (34 out of 68) were either at high risk or already in debt distress.
Total external debt of developing economies continues to rise since 2000. Graph: UN Trade and Development
External debt service as a proportion of exports of goods and services is a crucial measure of an economy’s external debt sustainability. For LICs (low income countries) the increase of this ratio has been most dramatic, rising nearly six-fold from 2.8%, just before the Global Financial Crisis, and to 15.7% in 2023.
Another indicator of external debt sustainability is the ratio of debt service on long-term external PPG as a percentage of government revenue. In 2023, LICs and LDCs (least developed countries) spent nearly 20% of government revenues to meet external public debt obligations, a four-fold increase over the last decade.
Source: UN Trade and DevelopmentPolicies drive healthy development of China’s sustainable debt market
From 2023 to 2024, the Chinese government has introduced a series of measures to support the development of the sustainable bond market. For example, the release of the guidelines for green bond disclosure (2023) has improved market transparency and credibility. The Shanghai, Shenzhen and Beijing stock exchanges have issued sustainable report disclosure rules for listed companies based on the standards framework of the International Sustainability Standards Board (ISSB), further promoting the standardization of information disclosure.
Graph: Climate Bond InitiativeThe total issuance volume of social and sustainability (S&S) bonds originating from China reached US$13.7 billion (106.4 billion yuan) in 2023. And the deal count in 2023 also reached 154, exceeding the 2021 peak (124 deals). No poverty (SDG 1), sustainable cities and communities (SDG 11), as well as clean water and sanitation (SDG 6) were the most frequently supported SDGs for Chinese S&S by deal number.In its 2024 Two Sessions report, China’s central government re-affirmed that government-backed bonds, including sovereign and municipal bonds, will serve as effective instruments to stimulate market demand and accelerate the pace of industry transition. Further policy guidance, however, is still required to launch the long-awaited labelled sovereign bond and municipal bond market.
Source: China Sustainable Debt State of the Market Report 2023
African Development Bank approves US$25 million loan to Seychelles
Photo: African Development Bank GroupThe Board of Directors of the African Development Bank Group approved a US$25 million loan in September 2024 to Seychelles to implement the first phase of the Economic Resilience and Green Recovery Support Programme aimed at economic governance management across the archipelago. The overall aim of the program is to contribute to Seychelles’ medium-term objectives of improving access to renewable energy, enhancing inclusive growth, and creating jobs, while leaving room for maneuver in the budget sphere and promoting debt sustainability. This will enable the government to allocate resources to priority projects and programs while protecting more vulnerable social groups.The operation will support efforts by the Seychelles authorities to improve tax revenues and enhance governance in the public sector, including efficiency of public spending and public service delivery as key pathways to advance governance and economic management reforms. The tax will play an important role in the country’s tax mobilization efforts and provide funds for investment in circular economy projects.
Photo: Ministry of Finance, National Planning & Trade of Seychelles
The program will also help the Seychelles authorities to deepen reforms that promote environment and climate resilience, assisting the government’s efforts to integrate climate adaptation and mitigation into the National Development Strategy for 2024-2028.Source: African Development Bank GroupArgentina launches bond swap to ease debt loadOn March 11, 2024, Argentina’s government launched a huge voluntary debt swap of peso and some dollar-linked instruments set to mature in 2024, a bid to push back repayments amid a major economic crisis hammering the South American country. The debt, which includes 15 different instruments with a total value pegged at around US$65 billion, may be exchanged for new inflation-linked instruments with maturity dates ranging from 2025 to 2028, according to the government.
In August 2024, the Argentine province of La Rioja has released a quasi-currency called Debt Cancellation Bonds (Bocade), more commonly known as “Chacho.” These new bank notes are an alternative to the Argentine peso. One Chacho is equal to one peso, and the notes will be printed in denominations of 1,000, 2,000, 5,000, 10,000, 20,000, and 50,000.Chachos are used to pay 30% of the salaries of public administration workers and to cover other provincial expenses. The new notes will be accepted at any store adhering to the provincial government’s program or any provincial state agency which would include water and electricity companies. The Riojan government also pointed out that all businesses may receive these bonds, but may not add any surcharge or receive them for a lesser value, and expressed the hope that it will revive the troubled economy.Source: Reuters, Numismatic News, MercoPressChina helps Zambia tide over debt restructuring“Common Framework” is an initiative launched by the G20 at the end of 2020 during the pandemic, aimed at helping highly indebted countries to restabilize their finances more quickly and easily. The framework brings together major creditor nations, including China and old industrial economies-the so-called Paris Club-to jointly negotiate debt restructuring plans with debtors.China is biggest creditor to Zambia once government and state-owned bank debt is combined. Graph: ReutersIn June 2024, Zambia’s international bondholders voted to restructure part of its US$13.4 billion debt, making Zambia the first country to complete a comprehensive restructuring under the G20-led “Common Framework.” It means that three-and-a-half years, or 1,300 days, after resource-rich Zambia was officially declared bankrupt, it has finally emerged from default. The overall restructuring is estimated to cut around US$900 million dollars from Zambia’s debt and spread its future payments over a much longer time frame.Drought has caused the hydroelectric generators of the Kariba Dam in Zambia to be unable to operate normally. Photo: APZambia’s debt restructuring negotiations have been complicated by a historic drought and currency depreciation. This case highlights the link between financial stability and environmental sustainability. To achieve the twin goals of stable economic development and climate protection at the same time, all creditors, including multilateral development banks and bondholders, must actively engage in debt restructuring. China is playing a constructive role in this regard, proposing innovative debt restructuring methods such as the “debt-for-development swap” and the “Shanghai model” to help countries break out of the vicious circle of economic and ecological fragility.Source: China Daily, IMF, ReutersChina announces strongest debt relief measures in recent yearsChina’s Ministry of Finance recently issued a statement announcing that it will adopt “the strongest debt relief measures in recent years.” At a press conference on October 12, 2024, Finance Minister Lan Fo’an unveiled a plan to substantially raise the local government debt ceiling in one lump sum, paving the way for the replacement of existing hidden local debts through more government bond issuance. In addition, the Ministry of Finance will continue to allocate a portion of annual special bonds to address existing debt related to government investment projects.The ministry set up a bond issuance quota of over 2.2 trillion yuan in 2023 to support localities, particularly high-risk areas, in addressing existing debt risks and clearing arrears owed to enterprises. An additional 1.2 trillion yuan of quota has been arranged this year. The move is expected to help clarify and gradually alleviate implicit debt risks, analysts said. Estimates suggest that the scale of this new round of debt replacement could exceed 2.2 trillion yuan (about US$311 billion).Source: Xinhua, South China Morning PostSustainable Development Goals (SDGs) initiated by the United NationsOn January 1, 2016, the 17 Sustainable Development Goals (SDGs), including 169 targets, of the 2030 Agenda for Sustainable Development — adopted by world leaders in September 2015 at an historic UN Summit — officially came into force. Countries will mobilize efforts to end all forms of poverty, fight inequalities and tackle climate change while ensuring that no one is left behind.
