Innovations in sovereign debt: taking debt pause clauses to scale
This insight paper provides an overview of the key features of debt pause clauses, also known as climate resilient debt clauses. The paper highlights issues that may affect the incentives of sovereign governments and creditors to adopt them. It builds on confidential advice to the UK-chaired Private Sector Working Group by the Centre for Disaster Protection and has been informed by a private roundtable discussion with key legal, sovereign finance and development experts convened by the Centre in March 2023.
Capturing the potential benefits of pausable debt will require thoughtful design of the instruments and active policy support to ensure countries and their creditors make informed decisions. Transparency, learning and iteration as these instruments are rolled out will be essential. Scaling up the adoption of these clauses, especially among lower-income and climate-vulnerable countries, is a pragmatic step towards creating an international debt architecture that can absorb shocks better amidst accelerating debt, climate and disaster risk.
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