Terms of reference
The Review will conduct a comprehensive assessment of how the structure, volume and analysis of sovereign debt impact on the ability of low and middle-income countries to conserve nature, adapt to climate change, and decarbonize their economies; and how such debt can become more sustainable, both fiscally and environmentally.
The Review will investigate in particular:
(a) whether and how countries can optimise for climate purposes their sovereign debt in order to ensure sufficient funds for spending on climate change and environmental protection, alongside other sustainable development priorities such as education, health and poverty reduction as well as private sector development and domestic resource mobilization;
(b) whether and how new debt can be structured in a way that enables countries better to pursue climate-compatible and environmentally sustainable growth and development in a manner that maintains debt sustainability.
(c) whether current debt sustainability analysis used by national and international institutions, public and private sector creditors and credit rating agencies, adequately takes impacts on nature conservation, climate change and environmental sustainability into account, and if and how it could be improved to do so better, in coordination with the work already underway on this topic by the IMF and World Bank whose analysis is a core input in that perspective, whilst it can also benefit from the findings of the IEG.
The Review will examine, inter alia, the financial potential for ‘debt for climate’ and ‘debt for nature’ swaps including debt buybacks and conversions and the use of credit enhancement and guarantees; ‘KPI-linked’ and ‘sustainability-linked’ bonds and their value-added compared to green bonds; the treatment of environmental and climate investments in debt sustainability analysis; and other policy approaches, instruments, mechanisms and analytical tools which could support the better use of debt for climate-compatible and environmentally sustainable growth and development. In considering these issues, the Review will also consider how borrower countries can expand their fiscal capacity through domestic resource mobilisation and budget management.
The Review will:
- base its work on the highest quality economic, financial, capital market, debt sustainability, climate, and environmental analyses
- consult with sovereign creditors and borrowers, major international and national institutions, governments, civil society organizations, academics, and others with interest and expertise in this field
- incorporate the experiences of both low and middle-income countries from different socioeconomic contexts and provide differentiated recommendations accordingly.