According to the policy brief, the fiscal impacts of the covid-19 crisis are triggering debt distress in a growing number of countries and is severely limiting the ability of many to invest in recovery and the Sustainable Development Goals (SDGs), including urgently needed climate action.
42 economies borrowing from capital markets have experienced sovereign downgrades since the start of the pandemic, including 6 developed countries, 27 emerging market economies, and 9 least developed countries.
Sovereign downgrades cause borrowing costs to rise, especially for developing countries, which can, in turn, increase the risk of more nations taking on unsustainable debt – especially if the COVID-19 pandemic is more protracted and deeper than expected.
"Unless we take decisive action on debt and liquidity challenges, we risk another lost decade for many developing countries, putting the achievement of the SDGs by the 2030 deadline definitively out of reach," Guterres urged.
The policy brief, entitled Liquidity and Debt Solutions to Invest in the SDGs, takes stock of the global policy response since April last year, assess remaining gaps and challenges for their implementation, as well as propose updates to the recommendations, presented last year, in light of developments over the past 12 months.
The brief highlights the need for debt relief to create space for investments in recovery and for achieving the SDGs.
Even in cases of elevated debt, new borrowing can lead to improved creditworthiness if it finances productive investments, it noted, adding that debt relief can also free up resources, create conditions under which countries can return to voluntary market access, and may lower a country’s overall borrowing costs, with positive impacts across the whole economy.