UN warns of looming debt crisis for developing world
PD Reporter and Xinhua
Growing levels of debt threaten to destabilise developing countries, tipping many into poverty, social unrest and conflict, the United Nations has warned.
The fear of debt crisis in developing countries caused largely by Covid-19 pandemic comes at a time Kenya is set to float another euro bond in a bid to tame mounting pressures to meet growing debt obligations.
National Treasury Cabinet secretary Ukur Yatani has acknowledged that the country will go back to the international financial markets to secure additional funding if it does not get enough cheap loans from multilateral lenders.
Kenya’s public debt stock amounted to Sh 7.3 trillion at the end of last year, equivalent to 65.6 per cent of gross domestic product (GDP), mainly on account of expenditure pressures related to infrastructure and debt servicing, coupled with decline in revenue generation.
Speaking during a high-level event on debt and liquidity on Monday, UN Secretary General Antonio Guterres called for urgent, bold measures to address the emerging debt crisis in a growing number of countries.
“We are on the verge of a debt crisis. Today’s meeting, convened with our partners, the prime ministers of Canada and Jamaica, is a call for urgent action,” he said.
Emerging market
“Six countries have already defaulted. One-third of emerging market economies are at high risk of fiscal crisis.
And the situation is even worse for least-developed and low-income countries.
They face a painfully slow recovery that will put the 2030 Agenda for Sustainable Development and the Paris Agreement completely out of reach, he warned.
Developing countries, Guterres said, need access to additional liquidity to respond to the pandemic and to invest in recovery.
“The international community must urgently provide the necessary support to all developing countries in need,” he added.
From the start of the pandemic, the United Nations has advocated for a three-phase approach to debt: a moratorium on debt payments, targeted debt relief, reforms to the international debt architecture, he noted.
Guterres welcomed the steps that have been taken, including fresh financing by international financial institutions, the Debt Service Suspension Initiative of the Group of 20, and the Common Framework for Debt Treatments, but said they are far from enough.
“I am, therefore, calling for much bolder and more ambitious measures. We strongly believe that the Debt Service Suspension Initiative must be extended into 2022, and made also available to highly indebted, vulnerable middle-income countries that request it” he added.
He said the Common Framework for Debt Treatments is facing difficulties as countries are reluctant to use it because they are concerned that it will have a negative impact on their credit rating, adding: “We need joint efforts to address this.”
“Additional, targeted debt relief to vulnerable countries, including middle-income ones, will ultimately be needed. A new debt mechanism could provide a menu of options including debt swaps, buy-backs and cancellations,” he said.
This is also the moment to tackle long-standing weaknesses in the international debt architecture, from lack of agreed principles, to restructuring that provide too little relief, too late, he added.
