Abstract

Small Island Developing States (SIDS), Least Developed Countries (LDCs), and other climate-vulnerable economies are facing converging fiscal crises. These are driven by climate-induced disasters, unsustainable debt burdens, and structural flaws in the global financial system that inflate the real cost of external debt servicing. Climate shocks and exchange rate volatility compound vulnerabilities, leaving countries with limited fiscal space to invest in adaptation, social protection, and development.

The Debt Sustainability Support Service (DSSS) was developed in response to these challenges, offering a structured and integrated mechanism that combines debt relief, climate-responsive finance, resilience-building investments, and expert advisory support. Although initiated for SIDS, DSSS is increasingly recognised as a globally relevant model. Its inclusion in the draft outcome document of the Fourth International Conference on Financing for Development (FFD4) reflects growing momentum for its operationalisation and expansion.

This high-level side event will bring together governments, financial institutions, technical experts, and development partners to present the institutional and operational model of DSSS and discuss how it can contribute to the broader objectives of FFD4. It will highlight pathways to unlock fiscal space for resilience, promote country-led governance, and build a coalition to deliver systemic financial reform tailored to climate-vulnerable economies.

Context

The global financial architecture continues to overlook the structural vulnerabilities of countries most affected by climate change. SIDS and LDCs, which are disproportionately affected despite contributing minimally to global emissions, spend more on debt service than on climate resilience or essential services. Over 40% of SIDS are in or near debt distress, and over 70% exceed the sustainability threshold for the debt-to-GDP ratio, often worsened by climate disasters and currency depreciation.

Traditional debt restructuring tools are slow, fragmented, and poorly tailored to account for climate risks or economic fragility. At the same time, countries face steep credit rating penalties that do not consider investments in resilience, further raising borrowing costs and limiting access to concessional finance. Resilience investments, such as seawalls, early warning systems, and water security projects, remain underfunded, especially in SIDS, LDCs, and landlocked countries.

The DSSS offers a new approach. It is designed around four core components:

1. Debt sustainability solutions including debt swaps, restructuring, and contingency clauses;

2. Future protection mechanisms such as parametric insurance and risk pooling;

3. Resilience investment, leveraging resilience, green and blue bonds;

4. Expert advisory support, including legal and negotiation assistance.

The Strategic Advisory Group (SAG), co-chaired by the Prime Minister of Antigua and Barbuda and the President of the Maldives, has steered the development of DSSS. It has now reached the operational phase, with anchor institutions being identified for each core component. This side event at FFD4 will showcase how DSSS can serve as a concrete mechanism for aligning financial reform with the climate and development needs of vulnerable economies.

Key Objectives of the Event

1. Launching the DSSS operational model
   Present the institutional home, governance structure, and delivery model of the DSSS. Outline how DSSS will operate across SIDS, LDCs, LLDCs, and FCAS while maintaining country-led leadership and regional responsiveness.

2. Aligning DSSS with the FFD4 mandate
   Explore how DSSS supports FFD4’s objectives on building an equitable international financial system. Emphasise the importance of integrating debt sustainability with resilience investments, climate finance, and financial architecture reform.

3. Addressing exchange rate and credit rating challenges
   Build on emerging research on the impact of currency fluctuations on debt burdens in SIDS and LDCs. Examine how DSSS can support solutions such as local currency lending, climate-adjusted risk assessments, and resilience-linked instruments to de-risk investments and stabilise economies.

4. Mobilising institutional and technical partnerships
   Identify and announce anchor partners for each DSSS component. Discuss co-financing and blended finance models, and clarify the role of multilateral development banks, insurers, legal experts, and the private sector in implementing DSSS.

5. Building a high-level coalition for DSSS delivery
   Foster a coalition of political, institutional, and financial champions to drive implementation of the DSSS across regions. Ensure coordination across initiatives, facilitate knowledge exchange, and enable strategic scale-up.

Expected Outcome

This event will help in advancing DSSS into action, ensuring that debt sustainability solutions are embedded in the evolving global financial landscape, specifically helping achieve the following:

1. Public presentation and endorsement of the DSSS operational framework and key implementation milestones.

2. Confirmation of institutional partners to lead and deliver each DSSS component.

3. Alignment of DSSS with FFD4’s reform agenda, including debt restructuring, fiscal justice, and climate-responsive financing.

4. Policy dialogue on addressing currency risk and credit rating reform, and the inclusion of resilience building in debt sustainability frameworks.

5. Commitments from donors and technical partners to support scale-up, capacity-building, and regional rollouts.