UNDP has urged for action to shield developing countries from the effects of today’s overlapping crises, as well as to ensure that financing is aligned to support a just, inclusive, and equitable global transformation.
Transform global finance
“The building blocks to transform the global financial system are already being discussed at the G20 – multilateral development bank reform, debt restructuring, and liquidity injections – but with the divide between developed and developing countries widening, we must move from words to action,” said UNDP Administrator Achim Steiner.
The policy brief identified 52 low- and middle-income developing economies that are either in debt distress or are at high risk of falling into it. They collectively account for more than 40% of the world’s poorest people.
According to the analysis, a 30% reduction in their 2021 public external debt stock may save up to $148 billion in debt service payments over eight years.
25 developing economies are spending over 20% of their govt revenues on debt servicing.
— Achim Steiner (@ASteiner) February 22, 2023
Ahead of the #G20 Ministers of Finance Summit in India, @UNDP's new policy brief outlines steps needed for developing countries to come out of debt & inject liquidity https://t.co/4Euwy5RStO pic.twitter.com/57wncxXv6a
High debt burdens
According to UNDP, 25 developing nations currently have foreign debt service obligations that exceed 20% of total revenue, the highest amount in more than two decades, which has an impact on spending on key services, including steps to adapt and respond to climate change.
“The nations most burdened by debt and lack of access to credit are also pummelling by a slew of other crises; they are among the most affected by the economic impact of COVID-19, poverty, and the escalating climate disaster,” Mr. Steiner said.
“The moment has come to address the widening gap between rich and poor countries, to transform the international environment, and to build a debt architecture fit for purpose in our complex, linked, post-COVID world,” he continued.
SDG stimulus plan
The policy brief outlined how “significant fiscal space” can be freed up by increasing access to lower-cost and longer-term maturity funding, which are two of the focus areas included in the UN Secretary-Stimulus General’s Plan for the Sustainable Development Goals (SDGs), which was released last week.
The 17 SDGs, which have a deadline of 2030, give a blueprint for a more just, egalitarian, and “green” future.
UNDP Chief Economist George Gray Molina claimed that developing economies simply cannot fund progress on the SDGs or climate pledges if they borrow at up to 14% of income while paying more than 20% of revenue in debt servicing.
“The billions of dollars in savings identified by UNDP can only be realised if we all agree that it is time to de-risk development and climate finance,” he said.
The brief also demonstrated how “refinancing” middle-income countries’ bond debt to official creditor rates might create an additional $120 billion in savings.
It also emphasised the possibility of lowering the cost of financing for investments aligned with the SDGs and the Paris Climate Accord.
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