Growing public debt, debt relief, and sustainable inclusive recovery

The economic impacts of the COVID-19 pandemic continue to expand, and the ability of lower-income countries to implement policies has been limited. This is further constrained by growing levels of public debt, which have been compounded by increased spending related to climate disruptions such as floods, droughts, and other extreme weather events. This situation is leading to calls and initiatives for debt relief to help developing countries progress towards the Sustainable Development Goals (SDGs) and the commitments related to the Paris Agreement on climate change. However, current commitments remain short-term and are likely to be insufficient. There is limited discussion on how the growth of debt is impacting investments to achieve the SDGs and Paris commitments. Knowledge gaps exist regarding how growing debt is impacting policy choices; how sovereign debt can be swapped for climate commitments, and how such swaps can be implemented; and what impacts (if any) the debt situation has on innovative financing instruments and standards for sustainable investment. IDRC is currently supporting 40 organizations under 21 initiatives to provide policy advice for responses to the pandemic. Six of the projects focus on macro-economic policies, highlighting the limited fiscal means and policy space for low-income countries. This project will examine the evidence they produce to explore research directions and assess research capacity for building locally relevant solutions to debt that helps build a sustainable and inclusive recovery. It will contribute to deepening IDRC'Äôs understanding of the rapidly evolving debt crisis and help ensure that findings around the impact of debt on policymaking are adequately integrated in the program'Äôs research agenda.