Abstract

Small Island Developing States (SIDS), Least Developed Countries (LDCs), and other vulnerable economies face mounting debt distress, exacerbated by climate-induced shocks, structural financial inequalities, and currency fluctuations that inflate the real cost of external debt servicing. The Debt Sustainability Support Service (DSSS) was established for SIDS as a response to these challenges, integrating debt sustainability mechanisms with climate-responsive financing to create a pathway toward long-term resilience and financial stability. Recognising its significance, the Fourth International Conference on Financing for Development (FFD4) has included DSSS in its reform agenda, underscoring the urgent need to operationalise and scale this initiative beyond SIDS.

This high-level side event will bring together Ambassadors, financial institutions, and development partners to accelerate the operationalisation of DSSS within broader international financial architecture reforms. Discussions will focus on embedding debt sustainability as a core pillar of FFD4, ensuring that climate vulnerability is factored into debt risk assessments, and identifying institutional partnerships for implementing debt relief measures, resilience bonds, and concessional financing models.

Bringing in key partners with existing initiatives that align with different components of DSSS, the event will provide a platform to explore how these initiatives can expand, adapt, and bridge existing gaps. Strengthening collaboration between governments, financial institutions, development banks, and private sector actors will be a central focus, ensuring that financing solutions are complementary, technical assistance is aligned, and the global financial ecosystem is more responsive to the needs of vulnerable economies.

A key highlight of the event will also be the launch of a new research paper examining the impact of currency fluctuations on the debt burden in SIDS and LDCs. The findings will shed light on how volatile exchange rates intensify fiscal pressures, further complicating debt sustainability. Panellists will explore potential solutions, including debt instruments indexed to climate vulnerability, local currency financing mechanisms, and counter-cyclical lending instruments designed to provide greater financial stability during crises.

Context

The global financial system is failing to provide adequate debt relief and fiscal space to SIDS, LDCs, and other vulnerable economies. These countries, already burdened by external shocks such as climate change, economic volatility, and structural financial inequalities, are further constrained by unsustainable debt. Despite contributing minimally to global emissions, SIDS and LDCs bear the brunt of climate-induced disasters, leading to rising fiscal distress and limited resources for development investments. Over 40% of SIDS are in or near debt distress, while currency fluctuations amplify the real cost of external debt servicing, diverting resources away from resilience-building and essential public services.

In response, the Debt Sustainability Support Service (DSSS) was developed for SIDS as a structured mechanism to address these interlinked challenges, integrating debt sustainability measures, climate-responsive financing, and resilience-building investments. Recognising its global relevance, the Fourth International Conference on Financing for Development (FFD4) has included DSSS in its reform agenda, underscoring the urgent need to operationalise and scale this initiative beyond SIDS to LDCs and other climate-vulnerable economies.

This high-level side event will build on these developments, bringing together ministers, financial institutions, and development partners to accelerate the operationalisation of DSSS within broader international financial architecture reforms. A key focus will be on securing institutional partnerships and ensuring alignment with global financing mechanisms to strengthen debt sustainability solutions. The event will also mark the launch of a new research paper examining the impact of currency fluctuations on the debt burden in SIDS and LDCs, providing insights into how volatile exchange rates intensify fiscal pressures and limit economic resilience.

Beyond these discussions, the event will convene partners with existing initiatives that align with different components of DSSS. This will provide an opportunity to explore how these initiatives can expand, bridge existing gaps, and create synergies with DSSS. Strengthening collaboration across governments, financial institutions, development banks, and private sector actors will be essential to ensuring that debt relief solutions are comprehensive, financing mechanisms are complementary, and technical assistance efforts are effectively coordinated.

This discussion will serve as a critical milestone in advancing debt sustainability solutions from concept to implementation, reinforcing DSSS as a practical and scalable mechanism for strengthening financial resilience in the world’s most at-risk economies.

Key Objectives of the Event

1. Integrating debt sustainability into international finance reform
   This session will explore how DSSS can be embedded within FFD4 discussions to ensure that debt sustainability becomes a core pillar of global financial reforms. A key priority will be advocating for climate vulnerability to be formally recognised as a critical factor in debt risk assessments, enabling vulnerable economies to access concessional finance and targeted debt relief. Discussions will focus on practical debt sustainability solutions, including climate-linked debt restructuring, the reallocation of Special Drawing Rights (SDRs), and innovative fiscal tools that provide vulnerable economies with the necessary fiscal space to invest in adaptation, sustainable development, and economic stability.

2. Addressing currency fluctuation risks in debt sustainability
   The launch of the new research paper on currency fluctuations and debt burden in SIDS and LDCs will provide the foundation for a discussion on how exchange rate volatility intensifies debt distress. Experts will examine potential solutions, including debt instruments indexed to climate vulnerability, local currency financing mechanisms, and counter-cyclical lending instruments that mitigate fiscal instability. Addressing these risks is critical to ensuring that debt sustainability efforts are resilient to global market fluctuations and external economic shocks.

3. Operationalising and expanding DSSS
   With DSSS gaining momentum, the session will focus on its governance, financing structure, and expansion strategy. Discussions will outline the next steps for mobilising institutional partnerships, identifying anchor organisations for key DSSS components, and ensuring alignment with international financial institutions. The conversation will explore how DSSS can incorporate resilience bonds, concessional finance, and blended financing models to enhance its long-term impact and scalability. The role of multilateral institutions and regional development banks in providing financial and technical support will also be examined.

4. Aligning DSSS with broader global financial reforms
   To achieve systemic impact, DSSS must be aligned with broader international financial reforms that seek to create a more equitable and resilient global financial system. This includes embedding DSSS into global debt frameworks, advocating for credit rating reforms that reflect climate vulnerability, and improving access to concessional financing. The session will explore how DSSS can be integrated into ongoing financial reform discussions at the UN, World Bank, IMF, and regional development banks, ensuring that vulnerable economies have a stronger voice in shaping financial policies that affect their future.