Time is Running Out for Decisions on Debt Relief as Countries Face Escalating Development Crisis — Global Issues
UNITED NATIONAL, October 19 (IPS) – Low- and middle-income developing economies are being hit hard by global economic developments beyond their control. Monetary tightening in advanced economies coupled with growing fears of a global recession weakened currencies, skyrocketing interest rates, and investors fleeing.
All of that is contributing to the rapid deterioration of the already damaging debt crisis, which has been affecting the most vulnerable, the hardest.
In a new study released by the United Nations Development Program (UNDP), 54 developing economies (low and middle income) were identified as facing severe debt problems, 40% of all developing economies. first
Providing this group of countries with the debt relief they need is a manageable task for the international economy as this group accounts for less than 3% of the world economy. Failure to do so, however, could lead to catastrophic development failures as 54 people make up more than 50% of the world’s extreme poor and 28 of the 50 most climate vulnerable countries. In the world.
The country is stuck between a rock and a hard place. They cannot spend what is necessary to protect their citizens and protect their growth prospects while continuing to shoulder their rapidly growing debt burden.
Time is running out. Without the urgent push of debt relief efforts from the international community, more defaults would follow, and the debt crisis would turn into a permanent development crisis as history has taught us. ta.
Contrary to advice given in the early stages of the COVID-19 pandemic, in the face of high interest rates, inflation and debt levels, the International Monetary Fund is now urging countries to dominate fiscal spending. while delivering targeted and timed items. support vulnerable populations.
But many developing economies cannot easily transition to targeted and efficient social transfers or rapidly increase tax revenues – as the administrative capacity to do so takes years to build.
Without a viable alternative in the form of an approach to orderly and comprehensive debt restructuring, as well as additional liquidity support from the international community, countries will have to choose amid a messy and costly string of defaults and/or sudden spending cuts with disastrous consequences for low-income and vulnerable populations and development prospects in general.
Furthermore, both options significantly increase the risk of political and social unrest, threatening further setbacks and a deepening crisis.
We must also remember that these are happening against the backdrop of a growing climate crisis that we can only fight together as a global community. Without a rethink of debt relief, the global climate transition will be delayed, the economic costs of the transition will increase and the developing economies, who contribute the least. In this regard, will continue to incur a disproportionate scale of costs. Developing economies must be allowed to have sufficient financial space to implement ambitious sustainable development plans – including making much-needed investments in adaptation and mitigation. climate.
Debt forgiveness is one of the key components of the offering. The G20’s common framework for debt treaties, under which debt-hit countries can seek to restructure, will have to be reformed, including shifting focus to comprehensive debt restructuring to serve sustainable development goals.
This will require an urgent change of attitude and consciousness, especially among the major formal creditors, as well as complete debt transparency from both debtors and creditors. In our latest paper, we discuss possible ways for a Common Framework to focus on country eligibility, debt sustainability analysis, formal creditor coordination, participation in private creditors, policy conditions, and the use of debt provisions to target future economic and fiscal resilience.
Debt forgiveness decisions can’t wait any longer.
Nineteen developing economies – more than a third of developing economies that issue dollar debt in international markets – have now lost market access due to soaring interest rates, more than double with 9 countries at the beginning of 2022.
Similarly, credit ratings have slipped with 27 countries – nearly a third of rated developing economies – rated either ‘substantial risk, extreme speculation or default‘, up from 10 countries in early 2020.
Decades of hard-won development gains in the global south are now being eroded by intertwined debt and cost-of-living crises. Not only will a deepening development crisis lead to great human suffering, but the cost of regaining any lost development gains will increase dramatically the longer we wait. It is inconceivable, both morally and economically, that we allow a crisis to escalate when the international community has the resources it needs to stop it now.
Lars Jensen is an Economist at UNDP’s Strategic Policy Engagement Unit; George Gray Molina is Head of Strategic Engagement and Chief Economist at UNDP
firsthttps://www.undp.org/publications/avoiding-too-little-too-late-international-debt-relief
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