Finance ministers, central bank governors weigh new measures to curb surging inequalities
UN calls for urgent action on debt, vaccines, around the world
Washington —The United Nations called this week for expanded debt relief to all developing countries that request it and faster, more equitable COVID-19 vaccinations to tackle “unprecedented” fallout from the ongoing COVID-19 pandemic.
“To avoid a development crisis, the world must avoid a debt crisis,” UNDP Administrator Achim Steiner said on behalf of the United Nations in statements to the World Bank and International Monetary Fund (IMF) Development Committee and to the International Monetary and Financial Committee Board of Governors, gathered virtually for their yearly Spring Meetings. “This is no time for austerity.”
Speaking on behalf of the UN Secretary-General, Steiner also noted that that 84 percent of COVID-19 vaccines administered so far have gone to wealthier countries and urged swift measures to close major gaps in vaccine funding and production for poor countries.
While the world’s largest economies have mobilized an historic US$18 trillion in fiscal support, keeping people and economies afloat amid surging poverty, joblessness, and hunger, many developing countries cannot invest in recovery and resilience because of financing constraints, Steiner said.
“The least developed countries have spent 580 times less in per capita terms on their COVID-19 response than advanced economies. This division is starkly reflected in global access to vaccines. The work is not done until vaccines are in arms around the world and until the divergent paths of recovery correct course.”
The United Nations is calling specifically for stakeholders to offer legal and technical advice on options for debt and debt service relief, expand debt relief eligibility to include additional vulnerable countries on a case-by-case basis, and consider other mechanisms that would allow countries to access debt relief without jeopardizing their credit ratings.
“The economic and social costs of the COVID-19 pandemic have been unprecedented,” Steiner said, noting that the global economy contracted 4.3 percent in 2020, significantly more than during the 2008-2009 financial crisis. Echoing the Secretary-General’s call for debt relief, he urged governments and creditors to extend liquidity and debt relief to all developing countries that request it.
“We are witnessing a two-tiered global response. Among the most vulnerable countries, the general availability of vaccines could be many months, if not years, away. The risk of another lost decade of development and a failure to achieve the Sustainable Development Goals is high and rising. To help mitigate this risk… donors must meet their aid commitments and provide fresh concessional financing, especially but not only for the poorest countries,” Steiner said.
Debt relief must be expanded
“Debt vulnerabilities were already high in many developing economies when the pandemic hit. For many countries, debt problems extend beyond what can be handled by short-term liquidity support or debt moratoria, as offered to 73 countries by the Debt Service Suspension Initiative (DSSI),” he said. The Common Framework on Debt Treatment Beyond the DSSI, agreed last year by the Group of 20 largest economies, “marks a turning point as it offers a systematic way to restructure unsustainable debt.”
But eligibility for these measures doesn’t extend to a critical number of other vulnerable economies, including some middle-income economies and small island development states.
A new UNDP report finds that just under one third of highly indebted, vulnerable developing economies are ineligible for these debt relief measures, and that these countries account for more than two-thirds of total estimated external public debt service payments at risk from 2021-2025. Specifically, 72 countries, or 60 percent of all developing economies evaluated, are highly debt-vulnerable, and 19 severely so. Those 19 economies account for US$220 billion of debt payments at-risk.
The report, Sovereign Debt Vulnerabilities in Developing Economies, estimates that a minimum US$598 billion of external public debt service payments are at risk from 2021-2025 across the 72 countries studied, with US$311 billion owed to private creditors. But the most significant threat, it finds, is not a string of defaults but the possibility of a prolonged debt crisis that leaves countries with crushing debt burdens for years—preventing governments from making critical investments to benefit their own people and address the climate crisis.
Building back better and more sustainably will also require revamped tax and trade policies along with scaled-up efforts to combat illicit financial flows, all of which must prioritize tackling the climate crisis and surging inequalities globally, Steiner said.
The IMF and World Bank are urging member countries to keep up fiscal support for their economies and vulnerable citizens and businesses until the pandemic is firmly under control. The IMF has proposed a new allocation of US$650 billion in so-called “Special Drawing Rights,” which would provide liquidity to poorer countries in the form of an international reserve.
Socioeconomic impacts of the pandemic have slammed communities globally, as the COVID-19 virus and lockdown measures to contain it have forced people to earn less, learn less, and forego access to essential services. Longstanding wage and labor gaps, along with a heavier care burden, have meant COVID-19 has disproportionately impacted women—pushing more women than men out of paid employment and prompting a surge in gender-based violence.
UNDP serves as technical lead for the UN system in assessing socioeconomic impacts of the pandemic and devising response plans to address them, in collaboration with other UN entities, governments, International Finance Institutions, donors, and others. To date, 144 socio-economic impact assessments have been completed across 97 countries, and these have guided production of 119 response plans.