UN calls for stronger multilateral solutions to deal with debt crisis

Geneva [Switzerland], December 7 (ANI): Stronger multilateral solutions are urgently needed to tackle the debt crisis facing developing countries, UNCTAD Secretary-General Rebeca Grynspan said at the opening of the organization’s 13th Debt Management Conference.
The event, which runs from December 5 to 7 in Geneva, takes place as a wave of global crises has led many developing countries to take on more debt to address the needs of their populations.
In a statement, UNCTAD said that government debt levels as a share of GDP increased in over 100 developing countries between 2019 and 2021. Excluding China, this increase is estimated at about USD 2 trillion.
“This has not happened because of the bad behavior of one country. This has happened because of systemic shocks that have hit many countries at the same time,” Grynspan said in her statement.
With interest rates rising sharply, the debt crisis is putting enormous strain on public finances, especially in developing countries that need to invest in education, health care, their economies and adapting to climate change.
“Almost all developing countries have been left to face an impossible trade-off in a context marred by a pandemic, geopolitical instability and climate distress,” Grynspan said. “Debt cannot and must not become an obstacle for achieving the 2030 Agenda and the climate transition the world desperately needs.”
In the statement, UNCTAD advocated for the creation of a multilateral legal framework for debt restructuring and relief.
Such a framework is needed to facilitate timely and orderly debt crisis resolution with the involvement of all creditors, building on the debt reduction programme established by the Group of 20 major economies (G20) known as the Common Framework.
“We must support UNCTAD’s call for a reform of international monetary and financial governance,” Bolivian President Luis Acre said in a statement delivered by the country’s finance minister, Marcelo Montenegro.
Montenegro called for re-examining key aspects of the international financial architecture, including the debt sustainability assessments that serve as a basis for negotiations between debtors and creditors in relation to debt restructuring.
As debt burdens rise, developing country governments end up in a vicious circle, unable to invest in achieving Sustainable Development Goals (SDGs) and grow their economies, making it even harder to pay their debts.
“To resolve these issues equitably, this needs to be done in a manner that maintains the debtor countries’ ability to grow and meet its current and future debt obligations, while also fulfilling its commitments to the SDGs,” Sri Lankan President Ranil Wickremesinghe said in a statement delivered by the country’s permanent representative in Geneva, Ambassador Gothami Silva.
“I believe that the United Nations is best placed to find solutions to this end,” Silva said.
According to the UNCTAD, estimates show that if the median increase in rated sovereign debts since 2019 were fully reflected in interest payments, governments would pay an additional USD 1.1 trillion on the global debt stock in 2023.
This amount is almost four times the estimated annual investment of USD 250 billion required for climate adaptation and mitigation in developing countries, according to an UNCTAD report.
“The anachronistic global financial architecture inhibits timely access to affordable development and climate finance,” Belize’s finance minister, Christopher Coye, said. Coye was speaking at UNCTAD’s sixth session of the intergovernmental group of experts on financing for development, held from November 30 to December 2.
At UNCTAD’s debt management conference, Barbados’ finance minister, Ryan Staughn, said the world needed to find a solution to the debt crisis “that allows countries to be able to continue to respond to the climate crisis without getting ourselves into trouble.”
“I need not tell you the difference between borrowing to build a school or polyclinic versus borrowing to build an airport or a seaport, which have totally different objectives,” Staughn said in a statement delivered on behalf of Prime Minister Mia Amor Mottley.
Grynspan also drew attention to the impact of the currency composition of debt on public budgets in the context of an ever-stronger US dollar. International Monetary Fund estimates show that 70 per cent of all the debt in emerging countries and 85 per cent of the debt in low-income countries is in foreign currency.
Since governments in developing countries spend in local currency and borrow in foreign currency, this structure leaves public budgets highly exposed to large and unexpected currency depreciations.
By the end of November 2022, at least 88 countries had experienced a depreciation against the US dollar this year. In 31 of these countries, the depreciation was greater than 10 per cent. In most countries in Africa such a depreciation increases debt servicing requirements by the equivalent to public health spending on the continent, Grynspan said.
“The magnitude of these figures shows the systemic nature of the problem we are facing. And systemic problems demand systemic solutions,” she said. (ANI)