Can sovereign thematic bonds solve the financing gap for the SDGs?

Evidence and analysis are needed to support the scaling up of sovereign thematic bonds. The objectives of the study are twofold. Firstly, the study aims to gain a deeper understanding of constraints and incentives in existing de-risking mechanisms for mobilizing private finance from the capital markets for scaling up the issuance of Sovereign thematic bonds from Low-Income countries and lower middle-income countries. All alongside the prioritizations of Brazil during their G20 presidency on building a G20 roadmap for a more effective system of multilateral development banks. Secondly, the study seeks to present new ways of working across institutions and novel mechanisms for de-risking sovereign thematic bonds for the SDGs at scale which also includes the importance of purposefully technical assistance facilities to strengthen impact as well as supporting the financial structures. The study’s findings will shape recommendations to be disseminated with G20 actors to align and engage system-wide stakeholders.

Specific objectives include:

1.     Examine how institutions, especially MDBs, can cooperate and explore new methods around de-risking and investment solutions to catalyze private capital flows for the SDGs through scaled-up international de-risking. This would examine the global options targeted at G20 as an international financial policy platform.

2.     Determine how to better work with de-risking sovereign thematic bonds. The study will provide an empirical example which investigates how current sovereign debt limitations from International Monetary Fund (IMF) and multilateral banks could have an impact on de-risking at scale the issuance of sovereign thematic bonds. The sovereign debt limitation assessment of the cases could provide experience to compute in what LIC context/countries de-risking sovereign thematic bonds could work.

3.     The constraints and incentives in different structures regarding de-risking mechanisms such as, subordinated debt structures, pipelines and guarantees, for mobilizing private finance from the local and international capital markets at scale.

Define the value of a purposefully structured technical assistance mechanism to ensure impact and support the financial structures of the issuance of a sovereign thematic bond.