Urgent talks on a looming global debt crisis take place in Geneva at the second session of the Intergovernmental Group of Experts on Financing for Development on 7-9 November 2018.

Underlining the seriousness and urgency of debt trends that imperil the 2030 Agenda for Sustainable Development and could precipitate a new financial crisis, Ambassador Salim Baddoura of Lebanon, president of the UNCTAD Trade and Development Board, opened the second session of the IGE on Financing for Development in Geneva on 7 November. “Debt sustainability in developing countries is deteriorating fast,” he said.

UNCTAD Deputy Secretary-General Isabelle Durant agreed that the facts were worrying.

“By the end of 2017, the ratio of global debt to global GDP was almost one-third higher than it was on the eve of the world's worst global financial crisis in 2008,” she said. “The world’s outstanding debt accounts for more than three times the world’s GDP, the main concern being the growth of non-financial corporate debt.”

She said that the debt-to-GDP ratio exceeded 70% in a fifth of emerging and middle-income countries and was more than 60% in low-income countries.

“This leads to the following observation: in mid-2018, the number of low-income developing countries in over-indebtedness or at high risk of it reached 31 – as against 13 in 2013. The number has practically tripled!” Ms. Durant said.

Rude awakening

“It is in this uncertain and fragile financial context and in a global macroeconomic environment whose priority does not seem to be the financing of development that we face the challenges of implementing the pdf Addis Ababa Action Agenda (873 KB) ,” she said, referring to a 2016 plan that outlined the means of paying for the 2030 Agenda for Sustainable Development.

“The international community is, however, aware of the urgent need for decisive and multilateral actions and investments to achieve the Sustainable Development Goals,” Ms. Durant said. “At UNCTAD, we are continually striving for consensus and action on this issue.”

Some of the central concerns of the Addis Ababa Action Agenda, such as, for example, vulnerability and debt sustainability in developing countries, improving prevention and crisis preparedness, strengthening development cooperation, the consideration of environmental challenges and reforms of global economic governance must become priorities, Ms. Durant said.

“The financial context requires this – if we want to avoid a rude awakening,” she said.

Richard Kozul-Wright, UNCTAD’s director of globalization and development strategies, said debt was the common thread that linked the decade since the financial crisis and the coming decade before the 2030 Agenda is set to be achieved.

Referring to the detailed background paper prepared by UNCTAD for the meeting, he said that debt was the “glue” of hyperglobalization and recalled developing country debt crises during the last three decades.

“The kinds of systemic problems that debt poses require systemic solutions,” he said.

Equitable and inclusive

The chair of the meeting, Paul Oquist, Nicaragua’s Minister of National Policies, took aim at the “financialization” of the world economy, which he called “treacherous” for its offer of easy money with strings attached.

He said that a more equitable and inclusive global trading system was part of the answer, and he looked to the meeting to propose ideas and policy alternatives that could avert or solve a developing country debt crisis.

The vice-chair, Nozipho Joyce Mxakato-Diseko, South Africa’s ambassador to the United Nations in Geneva, recalled Nelson Mandela’s admiration for UNCTAD as a key forum for exploring urgent questions for developing countries, including indebtedness.

She outlined the many facets of the problem and said that the international community must reflect on a more balanced monetary and financial system while ensuring “policy space” that allows countries room for maneuver.

Long-term systemic reform

Maria Fernanda Espinosa Garcés, president of the United Nations General Assembly, said in a video statement that in the last ten years external debt had risen at an average annual rate of 8.5% for developing countries, and now totalled $7.6 trillion.

Debt as a way of financing sustainable development was risky, and governments must be well-informed to balance such risks, she said. The work of this meeting strengthened United Nations leadership on this issue in New York and Geneva, she added.

Ambassador Baddoura noted that the Addis Ababa Action Agenda also recognized that the international financial architecture required long-term systemic reform so that indebted countries could transform their financial health.

Sessions at the meeting focussed on the current landscape of rising debt burdens and linked vulnerabilities in developing countries, systemic reforms, the “middle-income trap” and multilateral policy priorities and options. 

Inga Rhonda King, president of the United Nations Economic and Social Council (ECOSOC), said in a video statement that deliberations from this meeting would feed into crucial financing for development follow-up talks at ECOSOC in New York in April 2019.