Developing country leaders rallied in Paris, highlighting the urgency for reform of the global financial architecture to counteract economic, environmental and social adversities, and to rescue the Sustainable Development Goals (SDGs).
“Predictable, affordable and sustainable financing is critical to allowing African countries to get back on track to achieve the Sustainable Development Goals,” Economic Commission for Africa (ECA) Acting Executive Secretary, Antonio Pedro, said at the Sustainable Debt Coalition event organized on the margins of the Summit for a New Global Financing Pact in Paris.
The Summit was convened by French President Emmanuel Macron to develop a roadmap to ease the debt burdens of low-income countries while freeing up more funds for development and climate financing.
The Sustainable Debt Coalition, launched by the Government of Egypt at COP27, aims to address critical financing challenges faced by emerging markets and developing economies, particularly the debilitating impacts these have on climate action and development. It introduces a fresh consultation pathway that intersects debt, climate, and developmental concerns, fostering dialogue for innovative solutions.
The coalition was launched by Egypt at COP27 as a means of ensuring that sustainability is suitably addressed in all debt instruments and as a means of ensuring fairness in debt treatments as well as affordable and predictable access to finance for developing countries.
Mr. Pedro highlighted that the Sustainable Debt Coalition’s push for reforms is aligned with the SDG Stimulus, an ambitious plan to secure $500 billion per year in additional financing for sustainable development unveiled by the UN Secretary General Antonio Guterres earlier this year.
High cost of finance, low development
Countries are facing numerous challenges stemming from the impacts of the COVID-19 pandemic, the ongoing war in Ukraine and the escalating economic costs of climate change, amongst other crises.
Egyptian minister of finance, Mohamed Maait said the rising debt is increasing financing gaps for climate and development. Trillions of dollars of investment are required per year to reach zero emissions and to meet SDGs.
He explained, “Government debt service costs are rising rapidly as a proportion of income revenue. In Africa this issue has increased by 62 percent since 2014. As we have seen through history, the impacts of higher debt servicing costs can be crushing for an economy. In Africa, more than 57 percent of countries now spend more on interest payments than on health. More than 17 per cent spend more on interest than on education”.
He added, “It is true that our nations are ambitious to develop, and it is also true that we are ambitious to limit climate change, but it is difficult to do this when we are burdened by expensive debt.”
The Sustainable Debt Coalition is fostering collaboration between creditor and borrower nations, with a focus on sustainability and debt management. The Coalition’s objectives include reducing debt costs, expanding access to sovereign debt guarantees and blended finance, and creating fiscal space for investments with positive environmental outcomes.
Supporting these objectives, the Coalition is bringing borrowing nations to stand together in international forums on debt issues of shared interest.
Finding alternative financing
Participants discussed practical solutions to strengthen the global financial safety net.
The advocacy of the Sustainable Debt Coalition to integrate climate contingency clauses in debt contracts was celebrated, as at the Summit numerous countries and institutions including the United Kingdom and World Bank committed to use such instruments to mitigate the financial risks faced by highly vulnerable nations.
Debt swaps were also discussed in the context of the urgent need to free fiscal space. Mr. Pedro highlighted that, “The ECA is supporting countries seeking to refinance their expensive debt through debt swaps, re-channeling savings to invest in the SDGs and climate action.”
African Union Commissioner for Trade and Industry at the Department of Infrastructure and Energy, Albert Muchanga, said that some polluters where not willing to incur costs in promoting debt sustainability and that pledges made for the Loss and Damage Fund agreed at COP27 in Egypt last year were from philanthropies and governments but not from the private sector that is benefiting from greenhouse gas emissions and was not taxed.
“One of the key features where there should be some movement is the mainstreaming of carbon trading in international trade.” he said.
Mr. Muchanga emphasized the support of the African Union for the Sustainable Debt Coalition and said the African Union is establishing a debt monitoring mechanism in its Trade Department so that it can get real time information on the debt situation of all AU member states.
In her intervention, Ms. Hanan Morsy, ECA’s Deputy Executive Secretary and Chief Economist, said while Africa faced huge development needs and financing gaps, there has been a decline in concessional financing and official development assistance over the last decade. This has put African countries in a precarious fiscal position.
Ms. Morsy noted that Africa’s share in global green finance is minuscule and there is an opportunity to effectively tap that market. The Sustainable Debt Coalition could help in this regard by scaling up the use of guarantees, enhancing design and reliability of associated key performance indicators and reducing the cost of reporting and monitoring them.
Commenting on how financial institutions can support sustainable debt, African Development Bank’s Vice President for Finance, Hassatou Diop N’sele, said while green bonds were good for diversifying financial portfolios, they were laborious in terms of allocation and reporting. She said, “nature swaps can make a difference because of the impact on both the debt and sustainability of countries and what they can do with the resources.”
Recommendations from the Africa High-Level Working Group on the Global Financial Architecture include lowering the cost of financing and increasing its availability as well as the need to overhaul the G20 Common Framework and to amplify the African voice on global platforms.
For her part, the Executive Secretary of the United Nations Economic and Social Commission for Western Asia, Rola Dashti, said it was important to redesign the G20 Common Framework which has failed to deliver on its promises.
“We need to work on our own voice and the Sustainable Debt Coalition voice also needs to be heard loud,” Ms. Dashti appealed.
Source: ECA
