Govts, multilateral lenders launch push for debt payment pauses

SEVILLE (Spain): A number of wealthy creditor nations and multilateral lenders have launched an initiative that aims to give sovereign borrowers breathing space on debt payments in the event of a climate or humanitarian crisis, Spain announced on Tuesday.

The Debt Suspension Clause Alliance was launched during a UN conference in Seville - a once in a decade meeting aimed at furthering development finance goals and guidelines.

The initiative pushes for the systematic inclusion of clauses in new public and commercial lending that allow for a temporary suspension of debt payments in the face of extraordinary events, such as natural disasters, food crises or health emergencies.

“The logic behind these clauses is simple but powerful: to create immediate fiscal space in times of greatest need, allowing countries to focus their resources on response and recovery without risking their solvency or ability to meet social spending,” said economy minister Carlos Cuerpo.

Speaking on the sidelines of the conference, Spain’s Foreign Minister Jose Manuel Albares told Reuters that the suspension clause for debt repayments could also cover war.

The governments of Canada, France and Britain were among the co-leaders of the initiative together with multilateral banks, including the Inter-American Development Bank, the European Investment Bank, the African Development Bank, the Development Bank of Latin America and the Caribbean and the Asian Development Bank.

A number of multilateral lenders have already added such clauses in their lending - including inserting them retroactively in some existing loans.

The Inter-American Development Bank said in the statement on Tuesday that adding climate-resilient debt clauses in sovereign loans had extended $3.2 billion in protection across several countries. It said it would expand this to more nations and broaden its scope. The European Investment Bank last year made climate-resilient debt clauses available to 70 developing countries.

The World Bank - one of the biggest multilateral development lenders - has also broadened the scope of its Climate Resilient Debt Clauses for the most vulnerable countries in recent years.