Daniel Stewart - Yesterday
The United Nations Development Programme (UNDP) has warned that failure to relieve the debt of half of the world's poorest people will lead to "a major systemic development crisis".
United Nations Development Programme (UNDP) Administrator, Achim Steiner -
MA JIANGUO / ZUMA PRESS / CONTACTOPHOTO
The claim is based on the fact that 54 developing countries representing more than half of the world's poorest people need urgent debt relief as a result of "cascading global crises," according to a UNDP report.
"Debt relief would be a small pill for rich countries, but the cost of inaction is brutal for the world's poorest. We cannot afford to repeat the mistake of providing too little relief, too late, in managing the debt burden of developing economies," said UNDP Administrator Achim Steiner.
In particular, UNDP warns that "the risks of inaction are dire" if these countries fail to access an "effective restructuring" of debt, as poverty will increase and the "much needed" investments for adaptation and mitigation of the effects of climate change will not be forthcoming when it is precisely these countries that are most vulnerable to changes in the climate.
The report, entitled 'Avoiding 'Too Little Too Late' on International Debt Relief', highlights the effects of government responses to the recent economic crisis and warns of its potential repercussions. Against this backdrop, the paper outlines a series of policy measures for debt restructuring that could help stem the debt crisis.
APROPRIATE TIME FOR AGREEMENT
The claim is based on the fact that 54 developing countries representing more than half of the world's poorest people need urgent debt relief as a result of "cascading global crises," according to a UNDP report.
"Debt relief would be a small pill for rich countries, but the cost of inaction is brutal for the world's poorest. We cannot afford to repeat the mistake of providing too little relief, too late, in managing the debt burden of developing economies," said UNDP Administrator Achim Steiner.
In particular, UNDP warns that "the risks of inaction are dire" if these countries fail to access an "effective restructuring" of debt, as poverty will increase and the "much needed" investments for adaptation and mitigation of the effects of climate change will not be forthcoming when it is precisely these countries that are most vulnerable to changes in the climate.
The report, entitled 'Avoiding 'Too Little Too Late' on International Debt Relief', highlights the effects of government responses to the recent economic crisis and warns of its potential repercussions. Against this backdrop, the paper outlines a series of policy measures for debt restructuring that could help stem the debt crisis.
APROPRIATE TIME FOR AGREEMENT
UNDP recalls that market conditions are changing rapidly, as synchronized fiscal and monetary tightening and low growth are fueling volatility around the world: 19 developing economies are now paying more than 10 percentage points above U.S. Treasury bonds to borrow money in the capital markets, pricing them out of the market. Holders of many developing economy bonds are seeing them trade at deep discounts of 40 to 60 cents on the dollar.
A debt deal could now be on the horizon: these market conditions encourage private creditors to negotiate debt relief within the G-20 Common Framework for Debt Treatment. Rising interest rates, the strong dollar and the looming global recession could change their negotiating position.
UNDP stresses that rich countries have the resources to end the debt crisis, which has deteriorated rapidly in part as a result of their own domestic policies. These policies have driven up interest rates in developing economies and sent investors fleeing.
This week the G-20 finance ministers will meet in Washington just before the annual meetings of the World Bank and IMF. Conditions are ripe for creditors and debtors to begin debt restructuring talks within the G-20 Common Framework and avoid a developing country debt crisis that could otherwise lead to a long-term development crisis.
The paper proposes a way forward for the Common Framework on debt restructuring, focusing on key areas: debt sustainability analysis, coordination of official creditors, participation of private creditors, and the use of state contingent debt clauses that target future economic and fiscal resilience.
UNDP proposes that the CDF focus on comprehensive restructurings that will allow countries a faster return to growth, financial markets and development progress.
"When emerging market bonds are trading at 40 cents on the dollar, private creditors suddenly become more open to negotiation. The missing ingredient at the moment is financial guarantees from major creditor governments to close a deal. Brady bonds were reason enough for creditors to come to the table in the 1980s. We are approaching a similar moment in 2022," said UNDP Chief Economist George Gray Molina.
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