Debt Pause Clauses Put to the Test: Policy Note Raises Key Issues and Solutions to Ensure Effective Clauses Ahead of Future Disasters
A new policy note from the Centre for Disaster Protection launched ahead of London Climate Action Week and the Fourth International Conference on Financing for Development calls for greater clarity, coordination and capacity-building to unlock the full potential of pause clauses.
London, 19 June 2025 — The Centre for Disaster Protection has published a new policy brief titled Debt Pause Clauses Confront Their First Disaster: From Hurricane Beryl To Broader Policy Momentum. The note examines the first-ever use of sovereign debt pause clauses triggered by a climate disaster and offers critical guidance to improve how these instruments are designed, implemented and scaled.
Following Hurricane Beryl in 2024, Grenada and St. Vincent and the Grenadines activated pause clauses in their debt agreements with bondholders and the World Bank respectively, temporarily suspending debt service payments. The clauses, aimed at providing rapid fiscal relief in the aftermath of shocks, are part of a growing toolkit of pre-arranged financing instruments that arrange financing in advance of future crises for vulnerable countries.
While the Caribbean experience demonstrates that pause clauses can offer timely relief, the policy note raises key issues given recent policy developments and discussions:
Limited evidence of the costs, benefits and unintended consequences of these clauses, especially when private creditors lend to governments given their adoption by these creditors is still nascent.
Lack of clear guidance and consensus on what good pause clauses look like and what is needed for them to be designed and used effectively.
Lack of standardisation and transparency, especially around the trigger structure, the decision-making process and how veto rights (implicit and explicit) are exercised.
The policy note outlines five key recommendations:
Clarify objectives: Creditors should make public what kinds of crises or impacts the clause is designed to respond to. There is significant room for misunderstandings and differing expectations when using complex, parametric triggers as well as broad triggers.
Build borrower capacity: Governments, supported by development partners, must be able to assess the potential value and risks of pause clauses in the context of their risk profile and debt portfolio, drawing on using the most recent evidence and information, particularly in those areas where there is still significant uncertainty.
Ensure value for money: Multilateral development banks (MDBs) should offer pause clauses where there’s a clear value proposition compared to other options, and should link them with their other instruments for building fiscal resilience.
Pre-agree veto rules: Creditors considering veto rights should publicly disclose the conditions under which a deferral request can be denied to manage expectations and reputational risks.
Develop and follow a set of common principles: While the specific circumstances of the creditor and borrower will lead to variations in the design of these clauses (e.g. whether can be included in existing debt contracts or only new ones), all stakeholders should ensure that the design and implementation of pause clauses foster the conditions necessary for them to be used effectively, aligning requirements across creditors and without placing undue burdens on borrowers.
Shakira Mustapha, Head of Evidence at the Centre for Disaster Protection, said: “In a world of tightening aid budgets, rising disaster risk, and limited fiscal space, pause clauses are a welcome addition to the sovereign risk financing toolbox. But for these clauses to fulfil their promise, governments need the capacity to make informed choices, and creditors must ensure that the clauses are transparent, fit-for-purpose and work in harmony with other disaster risk financing tools.”
As attention turns to the upcoming 4th International Conference on Financing for Development in July, with the Government of Spain seeking to build a Debt Pause Alliance to mainstream these clauses, the Centre urges international actors to treat pause clauses as a promising but not standalone solution, one that must be embedded in stronger systems for disaster planning and response.
The full policy note is available at: Debt pause clauses confront their first disaster: from hurricane beryl to broader policy momentum — Centre for Disaster Protection
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NOTES TO EDITORS
About the Centre for Disaster Protection
The Centre for Disaster Protection (the Centre) is a technical and policy advisory organisation focused on improving how the world plans and pays for disasters.
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