Lack of fiscal space and the risk of sovereign debt distress remain key stumbling blocks to achieving Sustainable Development Goals (SDGs) in developing countries. Because the allocation of concessional funds and debt relief is essentially reserved to Low Income countries (LICs), official financing strategies and mechanisms to support developing countries provide insufficient support to non-LICs that may need and deserve special consideration concerning official financing. This paper discusses how official financial support allocation could consider countries’ vulnerabilities in critical dimensions, with special reference to Small Island Developing States (SIDS). It explores how a…

The pandemic-induced global economic crisis has contributed to the re-emergence of sovereign default risk, especially for emerging and developing economies, and has directed attention to the impact of the institutions that are tasked with attempting to predict defaults: the international credit rating agencies. This paper describes four main challenges posed by credit rating agencies, especially from a developing and emerging economies perspective: potential bias in ratings, pro-cyclicality of ratings, governance issues and conflicts of interest, and incorporation of climate risk. It concludes with potential policy solutions addressed at ratings agencies, regulators, and policy makers.…

In most developing countries a shortage of long-term, local-currency financing for small-scale infrastructure projects impedes local economic development. Inadequate fiscal transfers, little own source revenue and low creditworthiness make it difficult for local governments to fully fund projects on their own. This paper proposes the use of project finance as a means to attract financing from domestic banks and institutional investors. Donors can play a catalytic role by providing technical assistance to develop projects and credit enhancement to attract commercial financing.