The power dynamics between creditors and debtors in sovereign debt are complex, but while creditors collectively dominate debtors, individually they risk undermining or slowing down negotiations, which is in nobody’s interest. In the current “non regime”, creditors typically face a “collective action” problem: while a fair process with known rules would benefit everyone, each creditor has an incentive to avoid it to reap the most profit (or fewest losses) in the debt restructuring. There is a general reluctance to relinquish power to an institution, whether it is the UN or any other institutional framework. Creditors currently coordinate action first within the Paris Club, then at the G20, and finally under the GSDR. Each of these spaces is a little more inclusive than the last, as creditors realise they need to build a broader consensus to define efficient and lasting solutions. For multilateral development banks (MDBs) and donor governments, timely debt resolution reduces expensive delays, the risk of free-riders, and other problems that would make resolution even more costly, and it saves the willing creditors from exclusively bearing the financial burden, as seen with the Heavily Indebted Poor Countries (HIPC) initiative and the Multilateral Debt Relief Initiative (MDRI).

A debt convention under the UN could offer transparency, predictability, and efficiency that benefits all actors in the debt arena, including creditors. When a country is given timely and equal treatment in restructuring its debt, it can recover faster, leading to stronger economic growth. This increases the country’s ability to repay its creditors, benefiting them in the long run. Furthermore, power relations are not static and can be influenced by the position of borrowing countries (and particularly their collective positioning in country groups at the UN) as well as by global and national civil society advocacy and campaigning.

Finally, creditor countries also have significant interests in various UN agendas, such as climate change, human rights, and the Sustainable Development Goals (SDGs), and have opted for multilateral processes rather than free-riding to protect their status quo. Unsustainable debt poses a serious threat to achieving the SDGs. Debt crises divert vital resources away from social services, climate action, and economic development, which leaves countries unable to invest in key areas like education, healthcare, and environmental sustainability. If we fail to address the growing debt burden, the entire 2030 Agenda will be derailed.