A new United Nations (UN) report has said the crippling cost of debt financing for many developing countries has hampered their recovery from the COVID-19 pandemic, forced cuts in development spending and limited their ability to respond. to new shocks.
The Financing for Sustainable Development Report 2022: Bridging the Financial Gap is a joint product of the Inter-Agency Working Group on Financing for Development, which includes more than 60 UN agencies and international organizations.
According to a press release, the report found that while rich countries were able to support their pandemic recovery with record sums borrowed at ultra-low interest rates, poorer countries spent billions on debt servicing. , preventing them from investing in sustainable development.
It was shared that the pandemic shock pushed an additional 77 million people into extreme poverty in 2021 and that by the end of the year many economies remained below pre-2019 levels. The report estimated that in one in five developing countries, gross domestic product (GDP) per capita would not return to 2019 levels by the end of 2023, even before they had absorbed the effects of the conflict in Ukraine.
“As we approach half of the funding for the global Sustainable Development Goals, the findings are alarming,” said UN Deputy Secretary-General Amina Mohammed.
“There is no excuse for inaction at this defining moment of collective responsibility to ensure that hundreds of millions of people are lifted out of hunger and poverty. We must invest in access to decent and green jobs, social protection, healthcare and education, leaving no one behind.
The report says that, on average, the poorest developing countries pay 14% of their income in interest on their debt, almost four times more than developed countries, at 3.5%.
“Globally, many developing countries have been forced to cut budgets for education, infrastructure and other capital expenditures as a result of the pandemic. The conflict in Ukraine will exacerbate these challenges and create new ones, with higher energy and commodity prices, further supply chain disruptions, higher inflation coupled with weaker growth and increased volatility in financial markets,” he shared.
The statement notes that for many developing countries, the war is likely to lead to a further increase in over-indebtedness and an increase in hunger.
“Before the conflict, pandemic recovery gaps had already widened, with developing countries on average only having enough COVID-19 vaccine doses for 24 out of 100 people, compared to almost 150 out of 100 people for developed nations. Amazingly, in 2021, 70% of 10-year-olds in developing countries were unable to read basic text, an increase of 17% from 2019. With food prices in 2021 already at their highest level since a decade, the UN fears that the conflict in Ukraine will significantly worsen the economic prospects of many countries.
The rate of post-pandemic economic recovery in developed countries, however, points the way forward for increased investment, according to the report. “The developed world has proven over the past two years that millions of people can be lifted out of poverty with the right kind of investment – in resilient and clean infrastructure, social protection or public services,” the deputy said. -UN Secretary General Liu Zhenmin, who heads the department. Economic and Social Affairs which produced the report. “The international community must build on this progress and ensure that developing countries can invest at similar levels, while reducing inequalities and ensuring a sustainable energy transition.”
The report notes that there has been progress in poverty reduction, social protection and investment in sustainable development in 2021, driven by actions in developed countries and some large developing countries, including $17 trillion in emergency spending related to COVID-19.
As the statement explains, positive performances include: increased funding for research and development, green energy and digital technologies, for example from the European Union’s (EU) Next Generation EU recovery plan and the Infrastructure Investment and Jobs Act in the United States (US); rebound in private investment in 2021 – with China and the US accounting for over 50% of the improvement; doubling of sustainable bond issuance to over $1 trillion, while sustainability-focused funds grew 62% from 2020; and private equity and venture capital investment in developing countries reached a record $230 billion (from $150 billion in 2020).
The report also notes record growth in official development assistance (ODA), which reached its highest level ever in 2020, reaching $161.2 billion.
“Yet 13 countries have cut ODA, and the sum remains insufficient for the immense needs of developing countries. The UN fears that the fallout from the crisis in Ukraine, with increased spending on refugees in Europe, will translate into a reduction in aid provided to the poorest countries. In the face of a global crisis, short-term actions and additional international support are needed to prevent debt crises and cope with the high cost of borrowing.
The press release noted, however, that the vast majority of developing countries will need active and urgent support to get back on track to achieve the Sustainable Development Goals (SDGs). The report estimates that in the poorest countries, a 20% increase in spending will be needed for key sectors.
The Bridging the Financial Gap report also provided recommendations for action in three areas.
The first recommendation is that there is an urgent need to address funding shortfalls and growing debt risks.
“For example, accelerating debt relief and expanding eligibility to heavily indebted middle-income countries, accepting debt swaps, and redirecting $100 billion of unused special drawing rights to countries in need. Countries can boost long-term, affordable and stable financing by strengthening the system of public development banks with greater capacity and financial support to national institutions,” the statement explains.
A second recommendation is that all funding streams should be aligned with sustainable development. “For example, the international tax system should reflect developments in the global economy and enable fair tax governance, trade policy and investment actions that can address vaccine inequity and improve access to vaccines. medical facilities, while globally consistent corporate sustainability reporting standards are needed for privately-owned and listed companies.
“Currently high fossil fuel prices present a new opportunity for countries to accelerate investments in a sustainable energy transition.”
A third recommendation is that increased transparency and a more comprehensive information ecosystem “will strengthen countries’ ability to manage risk and use resources well.
For example, combating illicit financial flows by improving the sharing and use of tax information, improving debt data transparency and developing long-term credit ratings for sovereigns”.