Wed, Oct 12, 2022 page6

• Poor nations need debt relief, UN says

  DIRE SITUATION: The nations at the most immediate risk are Sri Lanka, Pakistan, Tunisia, Chad and Zambia, the UN Development Programme’s chief economist said

  • AFP, GENEVA, Switzerland
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  Cascading global crises have left 54 nations — home to more than half of the world’s poorest people — in dire need of debt relief, the UN said yesterday.

  In a new report, the UN Development Programme (UNDP) said that dozens of developing nations are facing a rapidly deepening debt crisis and that “the risks of inaction are dire.”

  UNDP said that without immediate relief, at least 54 nations would see rising poverty levels, and “desperately needed investments in climate adaptation and mitigation will not happen.”

  

  UN Development Programme Administrator Achim Steiner speaks during an interview on the sidelines of a two-day international conference on reconstruction of Ukraine in Lugano, Switzerland, on July 5.

  Photo: AFP

  That is worrisome since the affected nations are “among the most climate-vulnerable in the world.”

  The agency’s report, published ahead of meetings of IMF, World Bank and the G20 finance ministers in Washington, highlighted the need for swift action, but despite repeated warnings, “little has happened so far, and the risks have been growing,” UNDP Administrator Achim Steiner told reporters in Geneva. “That crisis is intensifying and threatening to spill over into an entrenched development crisis across dozens of countries across the world.”

  The poor, indebted nations are facing converging economic pressures and many find it impossible to pay back their debt or access new financing.

  Market conditions are shifting rapidly as a synchronized fiscal and monetary contraction and low growth are fueling volatility around the globe, the UNDP said.

  The UN agency said debt troubles had been brewing in many of the affected nations long before the COVID-19 pandemic hit.

  “The rapid buildup in debt over the past decade has been consistently underestimated,” it said.

  The freeze on debt repayment during the pandemic to lighten their burden has expired and negotiations under the G20 Common Framework created during the pandemic to help heavily-indebted nations find a path to restructure their obligations has been moving at a snail’s pace.

  According to available data, 46 of the 54 nations had amassed public debt totaling US$782 billion in 2020, the report said.

  Argentina, Ukraine and Venezuela alone account for more than one-third of that amount.

  The situation is deteriorating rapidly, with 19 of the developing nations now effectively shut out of the lending market — 10 more than at the start of the year.

  Meanwhile, one-third of all the developing economies have seen their debt labeled as being “substantial risk, extremely speculative or default,” UNDP chief economist George Gray Molina told reporters.

  The nations at the most immediate risk are Sri Lanka, Pakistan, Tunisia, Chad and Zambia, he said.

  Gray Molina said private creditors have so far been the biggest obstacle to moving forward with needed restructuring, but he suggested that current market conditions could pave the way for a debt deal, as private creditors see the value of their holdings plunge by as much as 60 percent.

  “When emerging market bonds trade at 40 cents on the dollar, private creditors suddenly become more open to negotiation,” he said. “The incentives are to now join a negotiation where you might accept the haircut of 20 cents on the dollar, 15 cents on the dollar and 30 cents on the dollar.”

  However, willing creditors are not enough to actually nail down a much-needed debt-relief agreement, Gray Molina said.

  “The missing ingredients at this moment are financial assurances from major creditor governments to clinch a deal,” he said.

  Steiner, who has repeatedly raised the alarm about the crisis, voiced hope that the international community might finally recognize that action is in everyone’s shared interest.

  “Prevention is better than treatment and certainly ... much, much cheaper than having to deal with a global recession,” he said.
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