A United Nations agency has called on global financial leaders meeting in Washington DC this week to come to the aid of dozens of debt-burdened developing countries amid an intensifying cost of living crisis and the impending risk of a global recession.
Some 54 developing countries accounting for more than half of the world’s poorest people are in need of urgent debt relief after being hit by a “cascading” series of global crises, the UN Development Programme (UNDP) said in a paper released on Tuesday.
“In April already, the UNDP with a number of experts was drawing attention to what we considered to be a debt crisis that was already visible but was not being acted on,” Achim Steiner, UNDP administrator told journalists at a briefing on Monday.
“The crisis is intensifying and threatening to spill over into an entrenched development crisis across dozens of countries across the world,” he added. These include countries such as Tunisia and Sri Lanka.
The UNDP report comes as central bankers and finance ministers meet in Washington this week at the World Bank and IMF annual meetings to address rising inflation, a tightening monetary policy, slowing global growth and an intensifying war in Ukraine wreaking havoc on the global economy.
“Against this backdrop clearly we have a challenge to ourselves as an international community,” Steiner said, adding that the answer “cannot simply be to ask developing countries to borrow more money”.
According to the UNDP’s findings, 19 developing economies are now paying more than 10 percentage points over US Treasury bonds to borrow money on capital markets, effectively shutting them out of the market.
Its analysis further shows that close to one third of all developing economies with a credit rating are rated either at “substantial risk”, “extremely speculative” or “default” compared with 10 countries at the beginning of 2020.
“These are sobering statistics and I think it does not take much imagination to understand that this debt crisis threatens to spill over to an entrenched sustainable development crisis where countries can no longer fund investments urgently needed to deal with the impacts of the pandemic, but also needed to make progress on the sustainable development goals,” Steiner continued.
Among the proposals the UNDP puts forward in its paper, entitled Avoiding ‘Too Little Too Late’ on International Debt Relief, is expanding the eligibility of the G20 Common Framework - an initiative launched in 2020 and designed to streamline debt restructuring efforts for poorer countries in the wake of Covid pandemic.
It also calls for private creditors to come to the table and cooperate with financial institutions to coordinate their response. “Private creditors are a large part of the problem but therefore can also be a part of the solution,” Steiner added.
“Interest rates, a strong dollar, a looming global recession and an intensifying climate crisis, present the right moment for creditors to join the negotiating table.”