“Half of humanity lives in countries that look forced to spend more on debt service than on health and education, which means nothing less than a disaster for development”, highlighted the General secretary of the UN, António Guterres, presenting this Wednesday a new report of the UN Response Group to Global Crises.
The study a world of debt notes that 52 countries representing 40% of the developing world are in “serious problems of debt, and calls for urgent fiscal relief for those economies.
Last year, global public debt reached a record of 92 trillion dollars, developing countries owe 30% of that total, an amount that António Guterres described as “disproportionate”.
The analysis indicates that public debt has increased faster in developing countries than in industrialized countries over the past decade and explains that the increase in the developing world has been mainly due to growing development financing needs, exacerbated by the COVID-19 pandemic, the cost of living crisis and the climate change, and by limited alternative sources of financing.
Consequently, the number of countries facing high debt levels has increased considerably from only 22 countries in 2011 to 59 countries in 2022, details and specifies that the 70% of the developing world’s debt is concentrated in three economies: China, India and Brazil.
altered priorities
The governments of the most indebted nations give priority to the payment of interest on credits on necessary investments for development, the report added.
“Some of the poorest countries in the world are forced to choose between paying their debt or serving their population. They have virtually no fiscal space for essential investments in the Sustainable Development Goals or in the transition to renewable energy,” Guterres emphasized.
He added that despite the burden they pose, these unsustainable debts concentrated in poor countries, “they are not considered a systemic risk to the global financial system.”
As on previous occasions, the UN head asserted that the catastrophic levels of public debt in developing countries are a “systemic failure” that resulted from the colonial-era inequality built into “our outdated financial system”.
“That system has not fulfilled its mandate as a safety net to help all countries manage today’s cascade of unforeseen shocks: the pandemic; the devastating impact of the climate crisis; and the Russian invasion of Ukraine,” he said.
Vicious circle
Contrary to that mandate, the report stresses that developing countries are highly exposed to external shocks precisely because they have to pay debt service in foreign currency.
In this sense, Guterres specified that, on average, borrowing costs are four times higher for African countries than for the United States and eight times higher than for the richest European economies.
The poorest nations increasingly rely on private creditors who charge very high rates and they are forced to borrow more money for their economic survival, he said.
The Secretary General regretted that the debt has become “a trap that simply creates more debt” instead of being a useful financial tool.
restructuring mechanism
The UN study proposes a series of urgent measures, including an effective debt restructuring mechanism that advocates payment suspensions, the longest loan terms and the lowest rates“even for vulnerable middle-income countries,” stressed Guterres.
The document also requires a massive expansion of affordable long-term financingtransforming the way multilateral development banks work, redesigning them to support sustainable development and leveraging private resources.
The head of the UN recalled that the Bridgetown Agenda, led by the Prime Minister of Barbados, Mia Mottley, and the recent Summit for a New Global Financial Pact in Paris, generated other important proposals for international debt relief, and hoped that the next G20 meeting in September would serve to push some of these ideas forward.
The report stresses the need for a more inclusive system and proposes that it can be achieved by making effective the participation of developing countries in the governance of the international financial architecture.
“Inequality is embedded in the international financial architecture and that must end”, concludes the study.
