This Funder Collaborative Is Taking on Sovereign Debt, a Growing Problem in the Global South

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Sovereign debt, also known as public or national debt, is money a government owes to lenders outside the country. It’s an important financing tool that governments can use to promote growth and development in their countries, and according to the SAGE Fund, is sometimes the only tool available due to “shrinking development aid and limited capacity to expand revenue collection, including taxes.”

While sovereign debt levels improved in the 1990s, recent years have seen an increase, with nations in the Global South, in particular, seeing debt skyrocket due to the pandemic’s effects on the global economy. According to a 2021 brief by the European Network on Debt and Development, between 2010 and 2020, sovereign debt of developing countries increased from an average of 40.2% to 62.3% of GDP. More than one-third of that increase took place in 2020 alone. Out of 116 developing countries, a total of 108 saw an increase in their sovereign debt.

Mounting debt can cause serious problems. According to Sarita Gupta, vice president of U.S. programs at the Ford Foundation, “this threatens the ability of governments to ensure basic rights and protections for workers and communities, from labor rights to climate justice.” 

Funders Organized for Rights in the Global Economy, or FORGE, a philanthropic donor collaborative dedicated to building a global economy that works for all people and the planet, is looking to make a difference on sovereign debt, and recently announced its first round of grants on the topic.

Launched in 2020 as a response to the pandemic and the subsequent economic fallout, FORGE seeks to align funds to make a more meaningful impact on issues like natural resources, climate change, corporate accountability and human rights. Backers include stalwart U.S. progressive funders like Ford Foundation, Omidyar Network, Open Society Foundations and Wallace Global Fund. Other backers are Fundación Avina, a foundation that supports sustainable development in Latin America; the Laudes Foundation, which addresses inequality and climate change; Humanity United, True Costs Initiative, and Wellspring Philanthropic Fund. The SAGE Fund, itself a philanthropic collaborative focused on human rights in the global economy, is leading the collective grantmaking for FORGE and providing members with educational resources. 

Among FORGE’s strategies are its Response Fund and Vision Fund, which supports strategies that can make an immediate impact and offer potential to scale up their work. The Response Fund supports community and civil society organizations, workers’ rights groups and social movements that work with those most impacted by the economic fallout of the pandemic. The Vision Fund works to advance systemic change toward a more just and sustainable economy.

As part of its Vision Fund, FORGE announced $1.42 million in funding to organizations working on debt justice around the world. About 60% of these resources will go to organizations and their grassroots partners working in the Global South, in places such as Barbados, Guatemala, Ecuador, Argentina, Kenya, Somalia, Zimbabwe, South Africa and the Philippines. The full $1.42 million has been disbursed.

Grantees include the Bretton Woods Project, which has launched an initiative to pressure two key international financial institutions — the IMF and World Bank — to reform in ways that address unsustainable sovereign debt and create more just economics. The Center for Legal and Social Studies (CELS) is running an Argentina-based project that will explore how sovereign debt has impacted human rights in the South American country and will also seek to strengthen standards regarding sovereign lending and debt restructuring so that they are consistent with human rights obligations. The European Network on Debt and Development (Eurodad) will work with fellow debt justice movement networks around the globe to reform the global sovereign debt architecture. A full list of grantees can be found here.

“This round of Vision Fund grants by the FORGE collaborative is an effort to stop the bleeding by bringing debt justice and social justice movements together to craft equitable solutions for a post-pandemic recovery,” said Gupta. 

Meeting social needs

Sovereign debt is a big deal for two reasons. One, it generates pressure over fiscal space, meaning that depending on how sovereign debt is managed, governments will have more or less fiscal space to guarantee basic needs and social rights and hit developmental goals. Two, with debt levels increasing, governments have fewer resources to provide social protections so that those most vulnerable can cope with and adapt to shocks caused by the pandemic.

“So it’s creating a perfect storm that needs to be managed very carefully in order to protect social rights,” said Carlos Lozano, the program officer at FORGE who is leading this effort.

In an op-ed published in Foreign Policy, OSF President Mark Malloch-Brown said that a global economic crisis is looming on the horizon as many countries face possible default on their sovereign debt.

“Inequality has only worsened in the wake of the COVID-19 pandemic, particularly in low-income countries that didn’t have the luxury of borrowing at cheap rates to fund major fiscal stimulus packages to cushion the economic impact,” he wrote.

According to Malloch-Brown, more than half of all low-income countries are now either in debt distress or at high risk of it. This has forced governments to reduce spending on important things like climate change mitigation and education. While the pandemic has certainly had an enormous impact on wealth inequality, it also intersects with other issues like democracy, gender justice and the climate crisis. 

As Lozano put it: “All these elements are highly related with the way that the global economy is shaped and the way the global economy works. What we are trying to do is influence that architecture in order to promote systemic change because we truly believe that all these elements are connected.”

When it comes to climate change, for example, governments need resources in order to respond to climate-change-induced crises, as well as adaptation and mitigation strategies. If there is no money because of mounting debt, then meeting the demands of climate change will be even more difficult.

Sovereign debt has also had a major effect on gender justice issues. According to a brief by the U.S. Global Leadership Coalition, the pandemic has had a disproportionate impact on women and girls. As schools closed and children stayed at home, limited child care options led many women to leave their jobs in order to assume care tasks at home. Other issues related to the pandemic include a rise in domestic and gender-based violence, lack of access to contraception, and delays in programs dedicated to ending female genital mutilation and child marriage.

FORGE hopes that by supporting organizations that seek reduce the fiscal constraints on human rights protection, challenge debt-related policy that has negatively impacted workers and communities, and promote collaboration between debt justice advocates and social rights movements, it will be able to lessen the impact of sovereign debt on nations, particularly those in the Global South.

“We expect to see the debt justice movement invigorated,” said Lozano. “We are confident that the work that these wonderful organizations are doing is going to have an impact and is going to make a difference to common people and working people around the world.”