On June 20, 2025 the Pontifical Academy of Social Sciences (PASS) and Columbia University’s Initiative for Policy Dialogue (IPD) published a report by a commission of global experts calling for urgent action and systemic reforms to tackle the escalating debt and development crises.
The climate agenda is now on a collision course with the rising debt crisis in developing countries. Although they have largely been treated as separate problems so far, the debt crisis is now becoming a significant obstacle in addressing climate change. Leaders of developing countries are being urged to commit to ambitious long-term climate plans, while their houses are on fire.
In 2019, debt for developing countries stood at a 50-year high. Since then, the Covid-19 pandemic, the Ukraine war and rising interest rates in major economies’ central banks exacerbated debt vulnerabilities.
BRICS leaders have approved creating a new development bank which would fund long-term investment in infrastructure and more sustainable development.
Evidence suggests that sovereign debt markets are not featured by perfect competition but power dynamics are a key determinant of market outcomes such as ex-post returns on sovereign bonds.
Debt Sustainability Analyses (DSAs) are documents that hold serious implications for both debtors and creditors in sovereign debt negotiations. DSAs are not merely technical assessments of countries’ capacity to take on debt but are also grounded in political assumptions.
Stiglitz comments on the failure of the IMF Paper on Restructuring Sovereign Debt to note the importance of other conflicts of interest, the conflicts of interests among different creditors (including across different instruments) and the conflicts of interests between creditors and debtors.
The authors found this intriguing, as it is doubtful that senior political figures in the major economic powers knew what legal boilerplate was, let alone would advocate for particular clauses. There was policy content in the advocacy, however, over whether ‘market-based’ (i.e. contractual) changes would suffice to provide for orderly restructuring of sovereign bonds of developing countries in financial crisis. In fact, the CACs in question have yet to face a major test under fire. The authors found little indication of belief among the more than 100 intimately involved people in the CAC debate that they interviewed that the clauses would be important determinants of restructuring outcomes.
This paper looks at the international process for overcoming sovereign debt crises in developing and transition economies. It first characterizes the nature of sovereign debt crises, and how their resolution has fallen under the domain of global policy. It then highlights the complexity of determining how much debt a post-crisis country should end up with and how the major players interact in determining the actual workout in typical cases. It concludes by considering certain proposals for improving the chances that debt workouts will be effective, speedy and fair.