UNCTAD head warns developing nations face ‘impossible trade-off’ on debt

Anjali Sharma

GG News Bureau

UNITED NATIONS, 7th Dec. Head of the UNCTAD.Rebeca Grynspan on Tuesday warned that rising debt in low and middle-income countries has compromised their chances of sustainable development.

Ms. Grynspan said that between 70 and 85 per cent of the debt that emerging and low-income countries are responsible for is in a foreign currency.

She noted that develioping countries are highly vulnerable to the kind of large currency shocks that hit public spending precisely at a time when populations need financial support from their governments.

Ms. Grynspan was speaking at the 13^th UNCTAD Debt Management Conference – explained that this year, at least 88 countries have seen their currencies depreciate against the powerful US dollar, which is still the reserve currency of choice for many in times of global economic stress.

And in 31 of these countries, their currencies have dropped by more than 10 per cent, she added.

She noted that this has had a hugely negative impact for many African nations where the currency depreciations have increased the cost of debt repayments “by the equivalent of public health spending in the continent”.

The event taking place as wave of global crises has led many developing countries to take on more debt to help citizens cope with the fallout.

UNCTAD head 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 $2 trillion.

Ms. Grynspan said “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,” .

She added that with interest rates rising sharply, the debt crisis is putting enormous strain on public finances in developing countries that need to invest in education, health care, their economies and adapting to climate change.

“Debt cannot and must not become an obstacle for achieving the 2030 Agenda and the climate transition the world desperately needs”, she argued.

She advocates 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 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 finance minister, Marcelo Montenegro.

Mr. 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.

He said that as debt burdens rise, developing country governments end up in a vicious circle, unable to invest in achieving SDGs and grow their economies, making it even harder to pay their debts.

If a country defaults, the terms of debt restructuring are usually set by groups of creditors competing to get the best terms, rather than giving priority to economic and developmental concerns, or how sustainable it is to keep up with payments.

Sri Lankan President Ranil Wickremesinghe said in a statement delivered by the the permanent representative in Geneva, Ambassador Gothami Silva stated “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.”.

“I believe that the United Nations is best placed to find solutions to this end,” Ms. Silva said.

Ms. Grynspan said that if the median increase in rated sovereign debts since 2019 were fully reflected in interest payments, governments would pay an additional $1.1 trillion on the global debt stock in 2023.

According to UNCTAD report this amount is almost four times the estimated annual investment of $250 billion required for climate adaptation and mitigation in developing countries.

Belize’s finance minister, Christopher Coye, said ahead of the conference that “The anachronistic global financial architecture inhibits timely access to affordable development and climate finance,”

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.”

Mr. Staughn said in a statement delivered on behalf of Prime Minister Mia Amor Mottley “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,”

UNCTAD promotes multilateral solutions in the areas of capacity-building, debt transparency and debt crisis resolution and relief.

The agency is supporting countries with one of its most successful technical assistance initiatives.

UNCTAD said that the initiative offers countries proven solutions for managing debt and producing reliable data for policymaking.

DMFAS has supported 116 institutions mainly finance ministries and central banks in 75 countries.

Chad in January 2022 became the first country to officially request debt restructuring under the  G20’s Common Framework.

UNCTAD supports the establishment of a publicly accessible registry of debt data for developing countries on debt transparency, it concluded.