Calls for overhaul of global debt architecture intensify ahead of FfD4

The world’s poorest countries are spending more on debt service than on health and education combined — and they’re doing so with few effective options to restructure that debt. With the Fourth International Conference on Financing for Development, or FfD4, around the corner, a growing coalition of experts, advocates, and policymakers is pushing for a rethink of the international debt system — one that better reflects today’s financial realities, expands debtor agency, and creates fairer terms for restructuring. During a Devex Pro briefing on Tuesday, experts on sovereign debt expressed their frustration with the current system. The G20 Common Framework, which is the international community’s main tool for addressing sovereign debt distress, was described as inadequate and underutilized. Intended as a collaborative response to pandemic-era debt crises, the framework has so far helped only a handful of countries restructure their debt. “Very few cases have moved through the Common Framework,” said Eric LeCompte, executive director of Jubilee USA Network. “Even though two-thirds of African countries, as well as low-income countries, are spending more on debt than on social services, education, and health combined, they continue to make payments because they don’t feel the framework will actually help them to quickly get out of the crisis.” David Grigorian, a senior fellow at Harvard Kennedy School, noted that the Common Framework’s attempt to bring multiple players together has created a collective action problem — too many partners, not enough coordination. Others pointed to deeper flaws. Hannah Ryder, CEO of Development Reimagined, said low- and middle-income countries are looking for a process that is democratic, transparent, and inclusive of borrower voices — one that resembles a bankruptcy process offering a “fresh start.” “With both the Paris Club and the G20 framework, you have the IMF lead the process. The IMF is a creditor. That’s a conflict of interest,” Ryder said. Still, panelists agreed that the conversation shouldn't stop at pointing out problems in the status quo. With FfD4 approaching, many are advocating for a dual-track approach: fix what’s possible in the short term while laying the foundation for deeper reforms over time. A push for inclusive platforms One clear priority is creating more neutral, inclusive forums. The United Nations is viewed by many as a more democratic space than the International Monetary Fund or Group of 20 major economies, but proposals for intergovernmental U.N.-led processes are facing resistance, particularly from European countries, according to Iolanda Fresnillo, policy and advocacy manager for debt justice at Eurodad. Fresnillo said that the European Union is planning to propose a yearly dialogue on debt that includes a handful of borrower countries alongside U.N. institutions, the Paris Club of 22 high-income creditor countries, China, and the IMF and World Bank, as an option for a more inclusive way forward. But she said this is not enough. “Why don’t we do an inclusive meeting, and not just the once-in-a-year dialogue?” said Fresnillo. “You’re not going to solve the problems of the debt architecture by just talking once per year.” Fresnillo and others highlighted a proposal by the Alliance of Small Island States, or AOSIS, to initiate a debt convention under the U.N., likely to be brought to the table at FfD4. The idea is to create a space where countries can discuss reforming the debt architecture, including how to make restructuring faster, fairer, and more predictable. Whether that proposal survives the FfD4 negotiations remains to be seen. While civil society has coalesced around these ideas, some major donor countries remain non-committal, and the United States has largely stayed silent in pre-conference discussions. Still, the hope is that even if the FfD4 outcome text falls short, the debate will continue elsewhere, including at the U.N. General Assembly, the upcoming G20 summits, and within borrower coalitions. What should a better system look like? While opinions differ on exact solutions, panelists broadly agree on what’s needed: clearer rules, more timely interventions, and mechanisms that avoid pitting different types of creditors — and debtors — against each other. Sovereign debt is owed to many types of lenders, whether it’s private bondholders, governments, or development banks, and they don't always have the same interests. Restructuring often turns into a negotiation where these groups compete for repayment, and countries are caught in the middle. Better systems with collective action clauses or coordinated restructuring platforms could align these partners and reduce power imbalances. LeCompte called for legal reforms in key jurisdictions, such as New York and London, to compel private creditors to participate in debt relief agreements. This could include new laws that require private creditors, such as hedge funds, to join debt relief agreements. He also emphasized the need to modernize IMF debt analysis, which often fails to account for climate shocks or economic volatility. Avinash Persaud, special adviser to the Inter-American Development Bank president and architect of the Bridgetown Initiative, cautioned that the current framework lumps very different debt challenges together. “Debt is very heterogeneous,” he said. “The vast majority of poor people in the world live in a middle-income country, which is indebted to private creditors for whom the Common Framework has no relevance.” Persaud also stressed that countries must feel safe defaulting on unsustainable debt, but many don’t — because of what he referred to as the “fear of fund.” The stigma and austerity conditions attached to IMF programs, he said, deter countries from restructuring debt early, leaving them to suffer under high-interest burdens. “The big problem is countries aren’t defaulting enough,” he said. “We need to find ways of reducing that fear so unsustainable debt is restructured as early as possible.” Ryder and Persaud both pointed to the power of regional solutions. The African Union has endorsed the idea of an African Financial Stability Mechanism, and the African Development Bank is considering how to support liquidity at the regional level. There is also momentum around ideas such as collective action clauses and pause clauses — contractual tools that shift power back toward borrowers during times of crisis. MDBs: Help or hindrance? While multilateral development banks have been called on to play a bigger role in debt relief, experts warned against asking MDBs to forgive debt directly. Doing so could undermine their ability to lend affordably. “We actually need MDBs to be three times bigger than they are,” Persaud said, adding that they shouldn't be forgiving their own debt — they need to be able to maintain their status as trustworthy creditors so that they can keep lending when no one else will. Instead, he and others argue that MDBs should support countries during restructurings by committing to new lending that sustains development goals and avoids overly harsh conditions. Looking to FfD4 — and beyond Despite many shared goals, expectations for the official FfD4 outcomes remain modest. The final negotiations, currently underway, have revealed sharp divisions — especially on debt and aid. Even so, advocates are optimistic that the issues on the table, such as sovereign debt governance, private creditor participation, and fair restructuring frameworks, will continue to gain traction. LeCompte noted that the Catholic Church declared 2025 a jubilee year for faith groups around the world, reviving a historic call for debt forgiveness and systemic reform. That framing, he argued, could help sustain momentum for change. “The reason that we’re talking about these issues is that they are perennial problems,” said LeCompte. “Modern history has shown that we have experienced debt crisis after debt crisis after financial crisis. Until we have both the short-term processes to deal with immediate needs and the long-term processes to prevent future crises, we’re going to continue to have perennial debt problems.”