Debt Relief for Resilience

In March 2025, eight former African heads of state called for urgent debt relief for vulnerable nations. This comes as over half of low-income countries are either in debt distress or at high risk. Current proposals focus mainly on providing liquidity relief, which, in light of the systemic risk current debt vulnerabilities cause, is insufficient to put countries back on a sustainable debt and development trajectory.

This research shows that many debt-vulnerable countries are not merely facing a sovereign debt problem. In the mid-1990s—on the eve of the adoption of the Heavily Indebted Poor Countries initiative, one of the largest debt relief initiatives in history—most participating low-income countries owed less than 10% of their external debt to private creditors, whether directly by the state (public and publicly guaranteed debt) or by their private sector (non-guaranteed private debt). Today, the share is much larger.

Non-guaranteed private debt, in particular, has short maturities and higher interest rates than public and publicly guaranteed debt, which creates acute balance of payment pressures in a context that is already characterized by high global interest rates, and capital outflows from developing countries. This is pushing economies into a dangerous cycle where vital public investments are neglected.

The D4R initiative offers a new approach, addressing this structural issue directly, through

• substantial official debt reduction
• preventing leakages to private creditors, through built-in measures to ensure that debt relief benefits governments directly
• growth-focused policies over austerity through national development plans, ensuring countries can invest in critical sectors like climate resilience and social development