V20 Debt Review: An Account of Debt in the Vulnerable Group of Twenty

The Vulnerable Twenty (V20) Group of Finance Ministers, a dedicated initiative of 55 climate vulnerable economies, is at the epicenter of looming debt and climate crises which are threatening their ability to build resilient and low-carbon economies. When scarce public finances are mostly spent on debt service rather than on investments to build a more resilient economy, countries will be locked into a cycle of unsustainable debt further fueled by climate impacts.

What trends characterize the V20’s debt portfolio? Who are the biggest creditors, and when are the biggest payments coming due? And how can debt relief be linked to climate and development goals for a green and inclusive recovery?

In partnership with the V20, a new policy brief by Luma Ramos, Rishikesh R. Bhandary, Kevin P. Gallagher and Rebecca Ray provides a detailed look at the scale, composition and distribution of the V20’s debt portfolio by creditors, finding that the majority of the $686.3 billion is owed to private creditors and multilateral development banks (MDBs), followed by Paris Club countries and China. Understanding these components of the V20’s debt profile is crucial to devising a global debt workout and coordinated policy response that places climate change and vulnerable nations at the center.

Key findings:

• In terms of external debt stock, the V20 as a group has a total of $686.3 billion in external public debt, amounting to 27 percent of the group’s gross domestic product (GDP). The V20’s total debt stock is one-fifth of all developing country debt (public and publicly guaranteed).
• Private creditors comprise the largest share of external debt stocks in V20 countries at 36 percent, followed by the World Bank at 20 percent and MDBs not including the World Bank at 20 percent. In terms of bilateral credit, Paris Club nations hold 13 percent of V20 debt stocks and China holds 7 percent of the total.
• In terms of external debt service payments, between 2022-2028, V20 countries will be responsible for almost $435.8 billion in payments to various creditors, with 2024 a particularly acute year at $68.9 billion.
  • Again, private creditors top the payments list (34.6 percent), followed by multilateral institutions (16 percent) and the World Bank (12 percent). China is fifth with a share of 10 percent.
• Countries with the highest outstanding commitments are Colombia ($51 billion), Vietnam ($32.6 billion), Sri Lanka ($31 billion), Bangladesh ($30 billion) and the Philippines ($29.7 billion).
• For 13 V20 countries classified as in debt distress or at high risk, the debt stock composition shows that the private sector owns 29 percent of the total debt stock, the World Bank holds 24 percent, China holds 16 percent and bilateral creditors without China also own 16 percent. 
• Private bondholders are expected to receive the largest share of payments between 2022-2027, but from 2028 onward, MDBs overtake private bondholders. Of the $18 billion that the V20 will owe to the MDBs, the World Bank is expected to receive $8 billion, with other MDBs receiving $10 billion. 

Ultimately, given the diverse debt portfolio of V20 countries, comprehensive debt restructuring across all creditor classes is urgently necessary, rather than case-by-case bilateral negotiations with specific creditor classes.