State of emergency: UN convenes Financing Forum while a new wave of debt crises threatens to derail sustainable development
This week, governments will meet at the United Nations in New York for the Financing for Development Forum, and the challenge is very clear. Too little progress has been made towards achieving the UN’s sustainable development goals (SDGs), which to a large extent is the consequence of lacking finance. The 2015 Addis Ababa Action Agenda, a UN framework adopted at the same time as the SDGs, which is supposed to ensure money flows toward development and the achievement of the SDGs, is not fulfilling its objective.
Political differences at the Addis Summit meant that fundamental institutions, such as a multilateral debt workout mechanism to prevent and resolve debt crises, could not be agreed upon. Developing countries have repeatedly called for developed countries to engage in a negotiation about setting up such a mechanism. It would fill a gaping hole in the international financial architecture, by providing an effective insolvency framework for states. So far, developed countries have refused to negotiate about this, causing it to become a highly pressing issue.
A task force of international agencies, including the UN, World Bank and IMF have just released a new Financing for Sustainable Development Report, which highlights that a new wave of debt crises has begun to strike. 40% of low income countries have severe debt problems, and also in richer countries, private and public debt levels are soaring. Consequently, global debt levels have reached new record highs.
The lack of political ambition at the Addis Summit is co-responsible for the problem. During the Summit, developing countries pushed for an intergovernmental tax agency to be set up under the UN, to address illicit financial flows and international tax dodging. Global solutions to these problems could have boosted the available levels of development finance significantly. For example, it is estimated that governments lose around US$500 billion in revenue every year, when multinational corporations use international loopholes to avoid taxes.
Another outstanding issue is the fulfilment of developed countries’ commitments to provide development aid to the world’s poorest. Just last week, preliminary figures showed that the level of development aid is dropping again, with the poorest countries being hardest hit. Furthermore, donor countries are increasingly reluctant to provide aid as grants, and using scarce aid resources for ‘blending’, which means subsidising private loans with aid, and thereby imposing more debt on poor countries. Furthermore, public-private partnerships have been promoted to leverage private investments in infrastructure and services in poor countries. However, in addition to creating new inequalities, they’ve often turned out to be expensive time bombs of hidden debt as faulty contract designs tend to put all the financial risks involved on the public side of the partnership.
Following the insufficient levels of tax revenue and development aid, debt-creating finance has been used to raise money. Developing countries have embarked on a borrowing boom, and issued expensive high-yield bonds on financial markets. With the interest rates on safe assets in Europe remaining near or below zero, these bonds became very popular among rich country investors looking for yields.
And that brings us back to the debt emergency. As a matter of urgency, governments must negotiate an international agreement on responsible lending and borrowing to prevent sovereign debt crises. Similarly, when a crisis is unpreventable, an orderly and rules-based procedure is the best way to address any insolvency in a speedy, fair, responsible and sustainable manner. The resistance of developed countries towards developing these solutions is hard to understand and an irresponsibility as such.
This week’s Financing for Development Forum provides a unique opportunity for governments to start fixing the unsolved problems from Addis. It is one of the few operational multilateral spaces where all nations are represented on an equal footing, and global agreements on economic governance can be made. But for progress to happen, we will need a large coalition of progressive governments to push for change.
It is hard to imagine us moving forward without Europe taking a leading role. But unfortunately, European nations have in the past not always played a constructive role in UN negotiations on economic matters. Just last month, EU countries voted against a UN Human Rights Council Resolution, which aimed to ensure that human rights are protected in cases of debt crises and austerity.
The 2019 Financing for Development Forum is governments’ chance to reinforce their effort to prevent the Sustainable Development Agenda from falling off the tracks. It is time for Europe to come to the UN’s negotiation table and actually help develop global solutions. This is the only way to ensure that we achieve the SDGs, stop climate change, protect human rights, and avoid that the next wave of debt crises derails the UN’s 2030 Agenda.