Unlock investment in the SDGs: Fostering innovative financing and strengthening global debt sustainability

The 13th informal meeting of High-Level Political Forum 2021 explored policy recommendations to scale up public and private financing and unlock catalytic investments for the achievements of the SDGs.

The global debt sustainability challenges

The lack of fiscal space and the mounting risk of sovereign debt distress has become critical stumbling blocks for developing countries to achieve the 2030 Agenda. Under the brutal hit of the COVID-19 pandemic, countries experience unprecedented collapses of domestic revenue while weighing with urgent financial need to address the overlapping issues of health, climate, environment, recovery and inequalities. Unfortunately, while most developed countries have progressively moved on through advanced technological inputs and plentiful fiscal backups, the developing world continues its financial dilemma in balancing their mounting debt payments and addressing their severe developmental crisis, which not only upends their economic recovery, but could also generate new debt crisis. As of 2020, a significant record of sovereign credit rating downgrades and defaults was observed in many LDCs and MICs, causing large debt overhangs and chronically restrained economic recoveries for the subsequent years. Governments leave no choice but to continue borrowing and investing, thus lead to a vicious debt cycle with everlasting liquidity shortage and debt vulnerability, which also widens the global financial gap of recovery and SDG achievements. It is thereby essential for global actions to recognize the systematic issues of the current economic conjuncture and develop new financing instruments to pave an equal-paced COVID-19 recovery and SDG achievements for all.

Transformative measures to unlock public and private SDG investments

To foster innovative and transformative measures in strengthening global debt sustainability and creating fiscal space for SDGs investments, international debt architecture reform and sustainable debt management are imperative, which include supporting information, coordination, adaptation, and equity. Increasing debt information requires high transparency from governments, which could not only facilitate informed lending decisions from the creditors, but also increase governments’ accountability in financial transactions. Coordination-wise, effective partnerships between multilateral financial institutions, development partners, debtors and creditors are needed for more sustainable and effective reform. Moreover, when considering states’ eligibility for debt assistance, it is paramount to recognize countries’ vulnerabilities rather than solely their national income, which could lead to a more targeted and inclusive service for those who needed. As for equity, it is of utter urgency to ensure greater participation from LDCs and MICs in the international debt architecture to rebalance the global political decision-making dynamics. In addition, effective combinations of private-public investments are equally crucial for SDGs advancements. Innovative financial instruments including sustainability/green-linked bonds are excellent means to incentivize local and foreign private investments and help developing countries to close the SDG gaps. Other measures such as progressive taxation and digital market transformation can also effectively elicit domestic resources for further SDGs investments. 

On the one hand, the effectiveness of SDGs investments heavily lies on governments’ willingness to undertake policy reforms and transform the economy in a sustainable direction. On the other hand, it is a global responsibility to ensure all emerging markets and developing countries can be adequately financed under a sustainable international debt architecture for an equal opportunity to recover and achieve the SDGs.

References:

https://sustainabledevelopment.un.org/index.php?page=view&type=20000&nr=7194&menu=2993

https://www.brookings.edu/research/debt-distress-and-development-distress-twin-crises-of-2021/
https://unctad.org/debt-and-finance/home

Meeting Title: High-level Political Forum on Sustainable Development (HLPF 2021), 13th Informal meeting

Date/Location: Monday, July 12, 2021; 09:00-11:30; The meeting was held virtually

Speaker:

Mr. Sergiy Kyslytsya (Ukraine), Vice President of ECOSOC;

Mr. Homi Kharas, Senior Fellow and Deputy Director for the Global Economy and Development program, Brookings Institution;

Ms. Alicia Bárcena, Executive Secretary of ECLAC;

Ms. Joyce Chang, Managing Director and Chair, Global Research, JP Morgan;

Ms. Anna Gelpern, Professor at Georgetown University and a non-resident senior fellow at the Peter G. Peterson Institute for International Economics; etc.

Written by: WIT-UN Representative Iris Sit

Balancing Debt and Sustainable Development

   Mr. Suescum presented a report on debt sustainability. “Rising interest rates and falling commodity price rates suggest an increased risk of sovereign debt problems in the future.” The international community agreed to handle these problems collectively with tighter financial regulations while promoting sustained economic growth and addressing the root causes of underdevelopment in less-developed countries. There was general agreement that the trading systems should focus on the Sustainable Development Goals’ realization.

   Mr. Valles spoke next, noting that SDGs are based around trade in many regards. World trade grew 3.2% last year, will grow 3.8% this year, and perhaps 4.8% next year. Most of the growth in 2014 came from Asia, Latin America, and the Caribbean. The 20 largest exporters represented 71% of world exports, indicating a trade inequality that requires policy attention. It is important to “mitigate the risks of trade adjustment mechanisms, especially for the poor.”

   Mr. Kim’s report discussed the effect of unilateral economic measures on developing countries. These sanctions have an adverse impact on developing countries, and that the number of sanctions has increased in recent years. This has had some severe consequences, affecting “human rights, public welfare”, and countries’ “long term growth prospects.”

   South Africa, on behalf of the Group of 77 and China, echoed by Jamaica, AOSIS, and the Group of Least Developed Countries, believes the international trade system should favor developing countries. It is important to eliminate all trade distorting measures.

   Ecuador and Zambia, speaking on behalf of the ECLAC and GLLDC, respectively, cited the need for countries to fulfill the pledges they made to send aid to the least developed countries as their stake in the international market has “hovered around 1%” for 40 years. The European Union, Canada, Australia, and New Zealand highlighted their commitment to combatting climate change.

Meeting: Second Committee, 19th Session

Date/Location: Monday, October 26, 2015; 15:00-18:00, Conference Room 2

Speakers: Alfredo Suescum, Vice-President of the Trade and Development Board; Guillermo Valles, Director of the International Trade in Goods, Services and Commodities Division, UNCTAD; Alexander Trepelkov, Director, Financing for Development Office, UN-DESA; Dusan Zivkovic, Debt and Development Finance Branch, Division on Globalization and Development Strategies of UNCTAD; Namsuk Kim, Development Policy and Analysis Division, Department of Economic and Social Affairs; H.E. Mr. Ramlan Bin Ibrahim, Malaysia; Mr. Thulani Nyembe, South Africa; H.E. Mr. Ahmed Sareer, Maldives; H.E. Dr. Mwaba Patricia Kasese-Bota, Zambia; H.E. Mr. Gerard Van Bohemen; Mr. Adebayo Babajide, European Union; Mr. Fred Sarufa, Papua New Guinea; H.E. Mr. Diego Morejón Pazmiño, Ecuador; H.E. Mr. Abulkalam Abdul Momen, Bangladesh; H.E. Mr. E. Courtenay Rattray, Jamaica; Ms. Caralyn Schwalger, New Zealand

Written by: WIT Representative Alex Margolick