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UN Pushes for Debt Reform, Financial Diversification, and Institutional Strengthening to Achieve SDGs
Debt Reform for SDGs: UN Urges Powerful Action on Finance and Institutional Change
Context: The United Nations Secretary-General Antonio Guterres, at the 2025 Economic and Social Council Forum on Financing for Development, emphasised the urgency of reforming the global financial architecture to achieve the Sustainable Development Goals (SDGs) by 2030. He outlined three priority areas: Debt reforms, Strengthening multilateral financial institutions & Diversification of financial sources.
Reforming the Global Debt Architecture
- Rising Burden of Debt
- Developing countries are now spending over $1.4 trillion annually on debt servicing.
- Debt has become a barrier instead of a tool for development.
- Debt as an Ally, Not a Villain: Guterres called for a rethink on debt: with appropriate reforms, debt can be transformed into a constructive development instrument.
- Proposed Reforms
- Establish a dedicated facility to help developing countries:
- Manage liabilities
- Enhance liquidity during crises
- Encourage Member States at the upcoming Sevilla Conference (June 30–July 3, 2025) to:
- Lower borrowing costs
- Improve debt restructuring mechanisms
- Prevent debt crises proactively
- Establish a dedicated facility to help developing countries:
- Role of G20 and Financial Institutions
- G20 must:
- Accelerate the Common Framework for Debt Treatments
- Expand eligibility to include middle-income countries facing financial stress
- IMF and World Bank should:
- Reform debt sustainability assessments
- Incorporate climate risks and SDG-related investments in evaluations
- Reforming Credit Ratings: Credit rating agencies must revise their methodologies to avoid unfair risk premiums on developing countries’ borrowings.
- G20 must:
Strengthening International Financial Institutions
- Expanding Lending Capacity: Multilateral Development Banks (MDBs) need tripled lending capacity to support the SDG agenda.
- Proposed Measures
- Recapitalisation of MDBs
- Stretching balance sheets to maximise development lending
- Enhancing capacity to mobilise private finance at reasonable rates
- Rationale: Developing countries face high borrowing costs, making access to capital for development increasingly difficult.
Diversification of Financial Sources
- Domestic Resource Mobilisation
- Countries must:
- Strengthen domestic revenue systems
- Invest in health, education, and infrastructure
- Countries must:
Global Coordination and Climate Finance
- UN Coordination
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- UN country teams will work to channel more funds into sustainable development at national and local levels.
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- Innovative Climate Finance
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- Platforms like COP30 (Brazil, 2025) will be leveraged to:
- Identify new sources of climate finance
- Mobilise up to $1.3 trillion annually by 2035 for developing countries
- Platforms like COP30 (Brazil, 2025) will be leveraged to:
- Blended Finance and Private Sector Collaboration: Blended finance options should be explored through public-private partnerships (PPPs).
- Fighting Corruption: Governments must enhance efforts to curb corruption to prevent diversion of critical funds away from development priorities.
- Fair Global Tax Regime
- Global efforts must ensure:A fair and inclusive international taxation system
- Effective application of international tax rules
- Global efforts must ensure:A fair and inclusive international taxation system
- Commitments by Donors
- Donor countries must:
- Fulfil their ODA commitments
- Donor countries must:
Ensure that aid flows reach the countries that need them most
Debt Service Suspension Initiative (DSSI): A Multilateral Attempt to Ease Fiscal Pressure
- Introduction
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- The Debt Service Suspension Initiative (DSSI) was launched by the G20 in April 2020 in response to the COVID-19 pandemic.
- It aimed to temporarily suspend debt service payments by low-income countries to official bilateral creditors.
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- Objectives and Features
- Help nations preserve liquidity for health and economic recovery instead of debt servicing.
- Applied to 73 eligible countries, though only 48 participated.
- Covered debt payments due from May 2020 to December 2021.
- Offering only suspension, not forgiveness — meaning deferred payments added to future burdens.
- Limitations
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- Private and multilateral creditors were not obligated to participate.
- Countries worried about sovereign credit rating downgrades, discouraging participation.
- Created a temporary fiscal cushion but no long-term debt relief.
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- Link to UN Agenda
- Reflects the need for permanent frameworks for debt restructuring, as stressed by Guterres.
- Highlights the urgency of systemic reform, not just one-off relief measures.
Green Debt Restructuring and Climate-Aligned Finance: Country-Level Innovations
Introduction
- As part of the UN’s third pillar (finance source diversification), debt is increasingly being linked to environmental sustainability.
- Countries are innovating with “Debt-for-Climate” swaps and green bonds to combine fiscal relief with environmental commitments.
Key Examples
- Seychelles: Debt-for-Nature Swap (2016)
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- Re-negotiated $21.6 million of debt in exchange for marine conservation commitments.
- Established the Seychelles Conservation and Climate Adaptation Trust.
- Serves as a model for small island developing states.
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- Belize: Blue Bond (2021)
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- Restructured $553 million in external commercial debt.
- In return, committed to marine biodiversity conservation through a $364 million blue bond deal, backed by The Nature Conservancy.
- Combined debt reduction, improved credit rating, and ocean conservation goals.
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- Barbados: “Bridgetown Initiative” & Blue Bonds
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- Advocates for climate-resilient debt clauses.
- Launched a debt-for-climate swap in 2022 supported by multilateral agencies.
- Promotes climate-responsive lending terms, including disaster clauses to pause repayments post-calamities.
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- Pakistan: Debt-for-Nature Discussions
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- After the 2022 floods, Pakistan is exploring debt relief mechanisms tied to climate adaptation and resilience efforts.
- Seeking green financing support via bilateral and multilateral platforms.
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- Sri Lanka: Debt-for-Climate Negotiations: In 2023-24, amid default, Sri Lanka explored options for green debt restructuring to reduce debt load while meeting climate targets under the Paris Agreement.
Relevance to UN’s Recommendations
- These examples align with:
- The UN’s call to factor climate risks into debt assessments
- The need to rethink credit ratings
- Use debt as a tool for sustainable development, not merely a liability
Conclusion
- The call by the UN Secretary-General underscores a critical shift in global financial governance to meet the 2030 SDG targets.
- The upcoming Sevilla Conference is expected to serve as a turning point, forging a collective commitment by member states to reform, recapitalise, and reimagine development finance for a more equitable global future.
