The multilateral system should not wait to act until developing economies slide into recession –the time to act is now
Urgent international financial system action needed to avert an unprecedented development crisis- UNDP
October 14, 2022
Washington, DC - The multilateral system needs to implement an urgent and far-reaching SDG Stimulus Plan, that starts with immediate liquidity and debt relief actions to allow developing economies to meet the global development goals. This was an urgent call to action from the Secretary-General of the United Nations, Antonio Guterres, at the World Bank and IMF annual meetings in Washington DC this week.
This message was further elaborated in the statements submitted by UNDP Administrator Achim Steiner at the meeting of International Monetary and Financial Committee (IMFC), and World Bank Group’s Development Committee where he represented the UN. “Action must be taken now for a sustainable common future – before the global economy tips into a recession, before the world becomes more fragmented,” said Steiner.
In a report on international debt relief issued before the World Bank–IMF annual meetings and ahead of the G20 Finance Ministers and Central Bank Governors Meeting, UNDP warned that 54 developing economies –that account for 3% of global GDP but over 50 percent of the world’s poor-- need debt relief now to avert a major systemic development crisis. The risks of inaction are dire: if debt-distressed developing economies do not get access to effective debt restructuring, poverty will rise, and they will struggle to invest in adapting to climate change. Poor countries in debt distress are among the most climate-vulnerable in the world.
“While the world struggles with multiple economic shocks and political crisis, this week’s World Bank-IMF annual meetings also struggled to achieve consensus on urgently needed actions,” said Steiner at the conclusion of the meetings. “The response by the G20 Nations and thus by the International Financial Institutions at this critical juncture remains inadequate to mobilize urgently needed liquidity and debt relief measures to counter a further deterioration of the economic outlook for many developing economies.”
Emphasizing that beyond the gloomy global economic outlook and geopolitical strife, solutions are available to policymakers, Steiner:
- Insisted on the need for short-term liquidity to developing economies to support recovery efforts in the near-term. “Liquidity issues are not unmanageable - we have been here before with COVID19, when G7 economies provided $16 trillion in liquidity between 2020-2021. Central banks have, and can again, provide liquidity to developing and emerging economies”, said Steiner. “The IMF can expand its emergency credit lines and accelerate Special Drawing Rights re-channeling.”
- Called for effective debt relief for developing economies. “We are at a point now where debt reprogramming needs to move to debt restructuring. Fifty-four economies are going through debt distress and are increasingly being shut out of capital markets. As capital markets deteriorate, the need for debt restructuring, guaranteed by financial assurances from the leading economies, grows,” said Steiner reflecting on the need for action by the G20 on the Common Framework.
- Called for an urgent push to finance to the Sustainable Development Goals (SDGs) and Paris climate agreement targets, aligned with country-level priorities and needs. Emphasizing the UN Secretary General’s call at the Annual Meetings for an SDG Stimulus Plan to direct public-sector commitments towards development, humanitarian, and climate mitigation and adaptation at an annual rate of 2% of global GDP, or US$500 billion per year by 2025, Steiner said: “This is now about re-balancing risk. Capital markets alone cannot, and have not, delivered the hundreds of billions that are needed; public development banks and multi-lateral development banks need to step in to expand concessional credit to developing economies at scale. As we chart our way out of this current crisis, we will also need to find new pathways of development around decarbonization and green and equitable energy transitions.”
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