A "lost decade" for developing countries?
Photo: Taken from the Twitter account @BrunoRguezP

Unsustainable debt undermines the ability of developing countries to move towards sustainability and poverty reduction. The high increase in fuel and food prices; The COVID-19 pandemic and the current war in Ukraine have undeniably worsened the economic outlook and, with it, the generalized risk of indebtedness for the most vulnerable countries.

The recent Sustainable Development Report 2022: Closing the Great Divide in UN Financing, explains that developing countries have yet to make up ground lost by the COVID-19 pandemic, which has placed more nations in a risk of over-indebtedness, restricted its fiscal margin and hampered economic growth. The war in Ukraine, added to the landscape, exacerbated all the challenges.

Statistical data showed that developed countries use 3.5% of their income to pay interest on their debt, compared to 14% that developing countries must use.

It further states that around 60% of those who make up the World Food Program and other low-income nations are now assessed as being at high risk of over-indebtedness, twice as many as in 2015.

According to the United Nations, 42 nations that borrow from capital markets have experienced sovereign debt downgrades since the start of the pandemic, of which six are developed countries, 27 are emerging markets, and nine countries are on the list. least developed list.

Those developing countries were forced to cut budgets for education, infrastructure and other capital spending as a result of the pandemic.

Thus, while rich countries are able to support the recovery from the pandemic with record amounts of resources raised at very low interest rates, poorer countries spent billions of dollars servicing their debt.

Between 2020 and 2021 the world economy experienced the worst recession in 90 years. It is estimated that 114 million jobs were lost and around 120 million people fell into extreme poverty. At the end of last year, many economies remained below 2019 levels.

The report estimates that the GDP per capita of 1 in 5 developing countries will not reach the levels seen in 2019 by the end of 2023, without taking into account the impacts of the war in Eastern Europe.

“As we approach the halfway point of financing the Sustainable Development Goals, the results are alarming. There is no excuse for not acting at this decisive moment of collective responsibility, to ensure that hundreds of millions of people are lifted out of hunger and poverty,” UN Under-Secretary-General Amina Mohammed told reporters. , who insisted that we must invest in access to decent and green jobs, social protection, health and education, but without leaving anyone behind.

The UN analyzes and studies recommend actions to address financing gaps and the risks of over-indebtedness. An example of this would be financial exchange agreements (swaps of debt) and the reallocation of unused IMF special drawing rights to countries that need them, which would guarantee stable, affordable and long-term financing through the strengthening of the system of public development banks.

Also, increased transparency and a more complete information system will improve the countries’ ability to manage risks and properly manage resources.

UN Secretary-General António Guterres has said what this debt situation means: “Unless we take decisive action on debt and liquidity challenges, we risk another ‘lost decade’ for many countries.” in development, putting achievement of the Goals by the 2030 deadline definitely out of reach.

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