These interruptions result from several, sometimes even seemingly arbitrary, factors, including assessments of their borrowing thresholds by the International Monetary Fund (IMF) using its debt sustainability framework (DSF).
Debt suspensions often culminate in defaults, complicating the financial situation of V20 countries and hindering their ability to allocate funds for important climate change adaptation and mitigation measures.
Furthermore, the IMF's evaluations often overlook negative interest rate-growth differentials (IRGDs) typical in these countries, which imply a broader fiscal space than acknowledged.
New research indicates that the majority of Low-Income Countries (LICs), barring a few, could have an additional fiscal space amounting to 75%-100% of their GDP beyond the IMF's DSF with high probability.
It is imperative, therefore, for financial institutions to take long-term perspectives when evaluating these climate-vulnerable nations with regards to their credit rating, in order to mitigate future debt defaults.