New Debt Suspension Clause Alliance Launched by Creditor Nations

SEVILLE, Spain: Several affluent creditor nations and international lending institutions have introduced a collaborative initiative designed to provide sovereign borrowers with temporary relief from debt obligations during climate-related or humanitarian crises, as announced by Spain on Tuesday.

The Debt Suspension Clause Alliance was unveiled at a United Nations conference held in Seville, a decennial gathering focused on advancing development finance objectives and guidelines.

The core objective of this undertaking is to advocate for the routine incorporation of provisions in new public and commercial lending agreements. These clauses would enable a provisional cessation of debt repayments when confronted with extraordinary circumstances, including natural disasters, food shortages, or public health emergencies.

Economy Minister Carlos Cuerpo emphasized, “The rationale behind these clauses is straightforward yet impactful: to generate immediate fiscal flexibility during times of acute need, enabling countries to prioritize resources towards response and recovery efforts without jeopardizing their solvency or compromising essential social expenditures.”

Foreign Minister Jose Manuel Albares noted on the conference’s sidelines that the debt repayment suspension clause could also be applied in instances of war.

The governments of Canada, France, and the United Kingdom are among the co-leading entities of this initiative, along with various multilateral banks such as 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.

Many multilateral lenders have already integrated such clauses into their lending practices, even applying them retroactively to certain existing loans.

The Inter-American Development Bank stated that the integration of climate-resilient debt clauses in sovereign loans has provided $3.2 billion in safeguards across multiple nations. The bank intends to broaden its reach to encompass additional countries and expand the scope of its application. The European Investment Bank made climate-resilient debt clauses accessible to 70 developing countries last year.

The World Bank, a prominent multilateral development lender, has also broadened the scope of its Climate Resilient Debt Clauses for the most vulnerable countries in recent years.