Financing an inclusive, green recovery in Least Developed Countries: debt instruments for climate and nature
The COVID-19 pandemic has hit Least Developed Countries (LDCs) hard. Even before the pandemic, LDCs were experiencing growing debt distress and the climate and nature crises were slowing development. The pandemic’s economic consequences have amplified this trajectory and the situation is likely to worsen if interest rates rise and immediate international support falls. Debt instruments for climate and nature, such as debt conversions or sustainability-linked bond issuances, can be part of financing an inclusive, green recovery for LDCs. These instruments can generate fiscal space or new capital that can be used for poverty-reducing and growth-enhancing climate adaptation, mitigation and nature investments. This briefing sets out seven steps LDCs can take to design debt instruments to support climate and nature. LDCs can complement this national action by advocating collectively for engagement from their creditors to achieve better outcomes. A mechanism for collective negotiation may be an international debt, climate and nature initiative, building on the platform being developed by the World Bank, the International Monetary Fund, the Organisation for Economic Co-operation and Development and the United Nations.