G20 Finance Ministers and Central Banks Meeting: Session IV - Global Debt and Financing for Development
29 February 2024
Your excellencies.
This G20 forum has shown itself capable of extraordinary action in times of great need. The SDR allocation, the DSSI, the Common Framework, the RST, the CAF review – these were important initiatives at the right moment.
And yet, too many countries have been left behind. This is the central story of the current debt crisis. Countries who are in debt distress or close it, countries who are priced out of the bond market, countries that spend more on debt servicing than on schools or hospitals.
These countries were left behind by both the shock and the aftershock. First came COVID, the earthquake, and then came inflation and the most rapid rise in interest rates in a generation, which was the tsunami.
Take, for example, Africa. In the year 2000 Sub Saharan Africa’s external debt to GDP was 53%, and debt servicing was 12 % of exports. By 2022, external debt to GDP was 41%, but debt servicing was 18 % of the region’s exports due to higher interest rates.
Making matters worse, if interest rates stay higher for longer, this year public debt servicing costs will grow by 10 percent for all developing countries —and by nearly 40 percent for low-income countries according to the World Bank.
Your excellencies,
If we all know these numbers, why is there no sense of urgency?
First, because markets are not suffering, although people are. This is not a financial crisis but a development crisis.
Second, because we have yet to go beyond the blame-game. These countries are not at fault for COVID, or war-induced inflation, or the rise of interest rates. The only moral hazard here is the hazard of inaction.
And third, lastly, we are complacent because we are too optimistic about aggregate numbers. Debt distressed countries are not having a soft landing, but a crash landing. Post-covid cumulative output losses amount to 40% of GDP in SIDS, and 30% in LDCs.
Excellencies,
We need immediate action from the G20 countries to deliver on the ambition of the SDG stimulus to increase affordable and long term MDB lending and repair a fraying Global Financial Safety Net.
To reform the Common Framework, going back to the four-point agenda put forward by the IMF and the World Bank, while initiating a dialogue to develop a stable and institutional debt mechanism.
To finish the work on climate resilient debt clauses for all creditors and include the voting provisions on the sovereign bond contracts; and begin a serious rethink of Debt Sustainability Analyses that will prevent the revolving door syndrome.
Finally, the G20 states need to support the IMF in its quota review and in the meantime suspend interest surcharges.
Thank you.
