Multidimensional Vulnerability and Sovereign Debt

Lack of fiscal space and the risk of sovereign debt distress remain key stumbling blocks to achieving Sustainable Development Goals (SDGs) in developing countries. Because the allocation of concessional funds and debt relief is essentially reserved to Low Income countries (LICs), official financing strategies and mechanisms to support developing countries provide insufficient support to non-LICs that may need and deserve special consideration concerning official financing. This paper discusses how official financial support allocation could consider countries’ vulnerabilities in critical dimensions, with special reference to Small Island Developing States (SIDS). It explores how a multidimensional vulnerability indexes (MVI) could be used to expand the access of vulnerable countries to official financing, including concessional financing, and facilitate constructive debt restructuring when they need it.