Urgent need for more and better development finance
The new report comes at a time when neither the implementation of the 2030 Development Agenda nor the Paris Climate Agreement is on track. Despite the UN General Assembly devoting a special High-Level Dialogue on Financing for Development
devoted to address this, there was no substantive agreement on measures to move the agenda forward.
In their report, titled “Financing the Green New Deal”, UNCTAD points to the principal problem that there are currently too few financing options available that do not create further debts. Assessing a sample of 31 developing countries, the report finds that just financing the necessary investments to address poverty, nutrition, health and education goals would increase debt levels from current public debt-to-GDP ratios of around 47 per cent to 185 per cent, far beyond sustainable levels. As a result, the report raises red flags in relation to the current development financing trends.
Furthermore, the report points at the risk of increasing reliance on private capital for development financing, concluding that “the bias towards private financing is based on limited empirical support and plays insufficient attention to the dangers of a world dominated by private credit creation and unregulated capital flows”. It also raises concerns on the development outcomes of such a development model that “will not only fail to generate the resources required for the investment push needed to deliver the 2030 Agenda but, in all likelihood, will further exacerbate the inequalities and imbalances that the Agenda is designed to eradicate.”
Despite the hype surrounding “leveraged” international private finance, it is nowhere near on track to providing the trillions needed to close the so-called financing gap. According to the UNCTAD, substantially scaling up of international public finance, including through official development assistance and even the issuance of special drawing rights, as well as major debt relief programs should therefore be an urgent priority if a massive new developing country debt crisis is to be avoided and the 2030 Agenda is to be achieved on time.
Out of control debt
Another reason is that the currently predominant types of debt and debt instruments are no longer growth-enhancing, UNCTAD states. Debt has been transformed from a long-term financing instrument into a speculative financial asset, which is volatile and carries high-risk. The TDR suggests that developing countries should make greater use of capital controls to protect from volatile capital flows. As it stands today, developing countries hold massive currency reserves as an insurance mechanism against crises. This means that on the one hand, countries take out expensive dollar-loans for investments, while simultaneously investing huge amounts of dollars in ‘safe assets’ with often negative yields on the other. According to UNCTAD, this policy error alone cost the sample of 16 assessed countries US$440 billion a year, or 2.2 per cent of their GDP.
In the report, UNCTAD also acknowledges that countries with already very high debt levels need debt restructuring which leads to actual debt relief, rather than debt reprofilings and renegotiations, over which countries just procrastinate instead of finding a sustainable workout for their debt problems. To achieve this, an international regulatory framework is badly needed to oversee sovereign debt restructurings, an issue that Eurodad and other civil society organisations restated in their brand new “We can work it out
” report, which was released in New York the same week.
A stronger role for public banks
For UNCTAD, a Global Green New Deal
implies rebuilding “the rules of the global economy toward goals of coordinated stability, shared prosperity, and environmental sustainability, while deliberately respecting the space for national policy sovereignty”. This is a crucial task if the world is to meet the Sustainable Development Goals and the climate targets of the Paris Agreement. Here UNCTAD’s report calls for a greater role for public (development) banks, given their “more diversified portfolio and broader geographic reach to under-served areas and segments of the economy” compared to private banks.
A system of public development banks at different levels – national, regional, and international - will have to be strengthened with adequate policies if the international community is to meet the ambitious targets of the 2030 Development Agenda. According to the report, such banks “need to be able to scale up, to lend in the desired directions and to be evaluated by performance metrics that fit their developmental mandate.” This supports Eurodad’s calls to strengthen public development banks
by promoting policy reforms that aim to equip such institutions to better to deliver sustainable development outcomes.
UNCTAD’s proposals are a valuable contribution to the current debate on how to overcome the threat of collapse that both the 2030 Development Agenda and the Paris Agenda face due to insufficient financing and other effective means of implementation. A problem that is aggravated by the current global economic downturn. Unfortunately, they came too late to inform the negotiations in the run up to the UN’s Global Summits last week, whose outcome documents had already been negotiated over the summer. We therefore encourage policy-makers to look at such proposals and pick them up in order to break the deadlock in sustainable development.