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Greening Sovereign-Debt Restructuring

The COVID-19 crisis has made painful sovereign-debt restructurings inevitable for many countries. If the pain can't be avoided, countries should at least make the best of it, with more favorable terms offered to debtors that improve protection of natural assets such as rainforests, wetlands, oceans, and biodiversity.

BEIJING – Many developing countries have so far avoided the high COVID-19 infection and mortality rates that are being experienced elsewhere. While that may be good news, at least in the short term, the bad news is that these countries are set to be among the hardest hit in economic terms.

The World Bank estimates that as many as 100 million people could fall into extreme poverty as a direct result of the crisis. This is only the tip of the iceberg, as developing-country exports collapse, and small businesses, communities, and livelihoods implode.

The fiscal implications are equally dire, with tax revenues in freefall and extraordinary increases in public spending. From Bangladesh to Brazil, developing countries are trying to keep their economies afloat through debt-financed public spending. South Africa’s $26 billion emergency fiscal-stimulus package, the largest in the country’s history, amounts to almost 10% of its GDP.

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