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January 25, 2023

The Role of Credit Enhancement in Sovereign Sustainability-linked Debt Issuance

The Landscaping Review explores the role that credit enhancement can play in sustainability-linked sovereign debt.

The Landscaping Review explores the critical role that credit enhancement and grant-funded technical assistance can play in facilitating the issuance and scaling of performance-linked sovereign debt instruments. Sovereign Sustainability-linked Bonds (SLBs) can initiate a Virtuous Circle of enhancing the resilience, productivity and investment capacity of a debtor country. The Review includes an overview of the market, the role of credit enhancement and the scope of enhancement tools and technical assistance, concluding with a few case studies that provide proof of concept.

The Review highlights the following key points:

·        There is a market need, and looming urgency, for the indebted nations and investors to have access to a suite of financing tools and services linked to issuing and/or restructuring debt that can address the sovereign debt, nature and climate crises.  

·        Scaling Sustainability-linked sovereign debt can ignite a revolution in sovereign debt markets.

·        Collaboration among public and private stakeholders will be necessary to meet objectives.