Opening Remarks at LDC Ministerial Breakfast Meeting, Strengthening resilience to debt vulnerability in the LDCs
Strengthening resilience to debt vulnerability in the LDCs
Posted April 13, 2019
As prepared for delivery.
The High Representative for the Least Developed Countries, Landlocked Developing Countries and the Small Island Developing States (UN-OHRLLS), Fekitamoeloa ‘Utoikamanu
The Chair of the Global Coordination Bureau of LDCs and Malawi’s Minister of Finance, Economic Planning and Development, Goodall Gondwe
Honourable Ministers of Finance and Economic Planning present
Ladies and Gentlemen,
I would like to thank our hosts of this event, the World Bank and UN-OHRLLS for organizing this breakfast meeting on a timely topic for a group of countries that continue to face intersecting vulnerabilities along their development pathways. It these risks are not carefully managed, it could result in significant reversals on development gains.
The devastating effects of Cyclone Idai that struck Mozambique, Zimbabwe and Malawi last month clearly illustrates that countries will have to face multiple and sometimes unexpected challenges as they progress.
Cyclone Idai not only demonstrates the devasting effects of a climactic shock, it also amplifies other vulnerabilities that we need to pay close attention to in order to build resilience within countries to maintain their sustainable development.
An Overview of Debt in LDCs
This leads me to the topic of our discussion today as we face the reality of a rise in global debt stocks again to the levels1 last seen during the debt crises of the 1980s.
Even more concerning, is the debt build-up in LDCs after the debt write-offs of the 1990s and early 2000s. This is due in part to increased public investments but also a shift from traditional sources to commercial sources of financing including non-traditional creditors and market-based financing. This has presented new and significant challenges in debt management at the country-level.
According to the most recent IMF-World Bank debt sustainability analyses, 40 per cent of LDCs and low-income countries were assessed to be in debt distress or with a high risk of debt distress.2 By 2017, at least eight countries were in debt distress including Eritrea, Somalia, Sudan, Zimbabwe, Chad, South Sudan, DRC and Mozambique.3
A further 164 countries of LDCs and Low-Income Countries were also assessed to be facing a high risk of debt distress. The trends are particularly unsettling for Sub Saharan Africa which has more countries with a high risk of debt distress compared to Asia and the Pacific - with at least four countries at a high risk of debt distress.
On a positive note, most LDCs have used government borrowing to finance public investments which have significantly improved human development outcomes. For example, between 1990 and 2017, the human development index of LDCs as a group, increased by more than 1.5% per year on average – this is more than twice the global annual average of 0.7%.
While debt financing remains an important source for achieving positive development outcomes in LDCs, the recent trends are a cause for concern. The impact of high levels of debt on development efforts cannot be overstated.
Debt service obligations compete directly with other critical public expenditure for available resources. We have also seen how a lot of these economies are also less resilient in the face of economic or environmental shocks.
Our collective efforts and continued support to LDCs in strengthening their resilience to economic and debt vulnerabilities among other areas therefore remains of critical importance.
A Call to Action
Against the above backdrop, there is need for a comprehensive policy and programmatic support to the LDCs to ensure enhanced debt management and sound macroeconomic policies but also importantly, bringing development financing to scale.
UNDP, as part of the broader UN Development System, continues to advocate for leveraging existing or potential funding flows; whether internal or external, public or private flows, considering the huge resource needs and gaps in LDCs. UNDP is supporting countries to expand their fiscal space through domestic resource mobilization efforts, amongst other instruments.
For instance, UNDP’s Tax Inspectors Without Borders Initiative supports countries to build their tax audit capacity. The initiative has so far supported up to 50 programmes globally, with 24 of these in Africa alone, mobilizing over US $400 million in domestic revenues.
UNDP is also supporting countries to undertake Development Finance Assessments (DFA) which takes a longer-term perspective on the dynamics of debt alongside other resources by providing a comprehensive mapping of all public and private finance flows. The assessments also consider the longer-term trajectories required to achieve national development objectives. Given the expanded field of non-traditional creditors to LDCs, DFA’s will support governments to think beyond shorter-term needs to the longer-term implications of changes in borrowing. Bangladesh, Bhutan, Cambodia, Lao PDR, Nepal, the Solomon Islands, Sudan and Mozambique are some of the countries that have benefitted from this support with many others in the pipeline.
UNDP continues to place a lot of value on its advocacy work for increased Official Development Assistance as catalytic funding for countries that need it the most including LDCs.
In recent years, we have advocated for greater use of state-contingent debt instruments, especially by public sector lenders and international financial institutions, which see debt service obligations fall when a major environmental or economic shock occurs. First applied in the Caribbean after the 2017 hurricanes, we hope to scale up-such support to other countries susceptible to climactic shocks.
On the prudent and efficient use of borrowed funds, as more countries enter the green bond space, UNDP is looking at how it can support countries with their impact measurement frameworks. For instance, UNDP supported the Government of Indonesia’s issuance of Green sukuk5 by supporting the development of an impact measurement framework.
I would like to reaffirm UNDP’s continued strong commitment to work with governments, international financial institutions, other UN Agencies, the private sector and other stakeholders in order to bring development financing to scale in order to ease the debt burden in LDCs.
UNDP intends to fully utilize its newly created Finance Sector Hub which is a platform to mobilize and leverage significant resources for SDG financing at all levels through new and innovative partnerships with the private sector, climate finance and other players alike.
As an international community, we need to leverage our global presence, partnerships, knowledge and expertise to ensure that the countries we serve do not fall back into debt crises. We will do our part, along with the confidence that LDCs will also be more vigilant on debt management.