By Akanimo Sampson
Steps announced by International Monetary and Finance Committee (IMFC) and World Bank Group Development Committee, to address debt crises and other financial distress to economies arising from the COVID-19 pandemic have received the blessing of the UN chief.
UN Secretary-General, Antonio Guterres, is welcoming the steps “as a sign of hope and renewed multilateralism.”
As COVID-19 halted economic activity and threatened social wellbeing across the globe, UN Economic and Social Council (ECOSOC) held a wide-ranging policy discussion last June, exploring financing options to address the pandemic and mobilise the resources needed for a proactive recovery.
“By all measures, we are in a recession of unparalleled proportions”, Deputy Secretary-General, Amina J. Mohammed, told delegates gathered by webcast for an informal meeting of the Council’s Financing for Development Forum. How to make the financing available to help Governments close the fiscal gaps is “a tough question that demands tailored responses.”
In developing countries, entire sectors are coming to a sudden stop and supply chains collapsing, she said. Budgets are under strain as governments struggle to meet the needs of their populations and address growing unemployment.
“Financing on an unprecedented scale is essential to an effective response”, Ms. Mohammed said.
Countries must have the financial means to fight the pandemic, and to invest in recovery. This will require mobilizing domestic and external resources – and in many cases sizable debt relief, based on level of vulnerability, rather than income and accounting for heterogeneous debt situations across countries.
Ms. Mohammed said the UN was now in “emergency mode”, adjusting its $17.8 billion portfolio to support the COVID-19 response, tailored to each country context.
From the start, the 131 UN country teams have fully mobilised to provide policy and operational support at the national level, she said. Regional economic commissions meanwhile continue to offer analysis to guide policy advice and advocacy on debt and financing issues at the national, subregional and regional levels.
She said UN was also offering targeted funding to help countries analyze all available financing sources, and non-financial means of implementation. There is a particular focus on: global liquidity and financial stability; debt vulnerability and engaging private sector creditors in solutions; the drop in external finance flows for inclusive growth; and stemming illicit financial flows.
She recalled last week’s High-level Event on Financing For Development in the Era of COVID-19 and Beyond, where Governments and international organizations had agreed to those priorities. “Our shared challenge is to make progress in these areas by sustaining a collaboration process throughout the year”, she assured.
Along similar lines, Council President Mona Juul (Norway) said COVID-19 offers a true test of global solidarity. Countries were already behind on achieving the Sustainable Development Goals (SDGs) prior to the pandemic. “We cannot let those that are less able to deal with this crisis fall further behind.”
She said there are a number of priority areas where progress is urgently needed, most notably on ensuring debt sustainability. A growing number of countries are facing debt distress due to the pandemic’s economic effects.
While the G20 decision to freeze debt service payments for the world’s poorest countries will free an estimated $11 billion until the end of 2020, she said eligible countries could have an additional $20 billion in multilateral and commercial debt combined coming due this year.
Even if the standstill is extended to 2021, many countries will have to make difficult choices between servicing their debt, fighting the pandemic and investing in recovery.
More broadly, Ms. Juul said progress must be made on tackling corruption to prevent the diversion of hundreds of billions of dollars. The newly established High-Level Panel on International Financial Accountability, Transparency and Integrity, is now at work on tax issues, corruption and illicit financial flows
Throughout, the Council has provided a platform for actions and policy guidance to tackle the pandemic. “Financing issues are on everybody’s mind,” she said. “We must direct our attention to those whose economies are devastated, and those who do not have the capacity to fight the disease.”
However, in a statement issued via his Spokesperson, António Guterres said developing economies had struggled to secure enough financial resources to cope with the onset of the coronavirus crisis, “let alone to recover from it.”
Since the beginning of the crisis, the Secretary-General has called for liquidity, the statement continued, through a large issuance of Special Drawing Rights (SDRs) – an instrument created by the International Monetary Fund to help supplement cash reserves – for those most in need, and a reallocation of unused SDRs.
Guterres has proposed a “three-phased approach to address debt burdens: a debt standstill, targeted debt relief for the most vulnerable, and a reform of the international debt architecture.”
New funds pledge
The Secretary-General welcomed the IMF committee’s “concrete calls” for a new allocation of SDRs, and voluntary reallocations to countries in need. He said he was encouraged by the support given for the Debt Service Suspension Initiative (DSSI), which has provided $5 billion in temporary relief for vulnerable countries, and for the Common Framework for Debt Treatments, agreed by the G20 economies.
“Debt standstills and relief must be extended to countries that need it most – including middle income countries, which are home to more than 60 per cent of the world’s poor – without creating stigma or compromising their sovereign ratings”, said the statement.
Reforming the international debt architecture is also critical, said the UN chief noting that a debt crisis amidst the COVID-19 emergency, “would put the Sustainable Development Goals out of reach. This week’s discussions on the international debt architecture are a major step in the right direction”, he added.
The Secretary-General called on all countries and institutions to join in a global effort to “rethink the principles underpinning today’s debt architecture, and urged action to “complement existing instruments with more effective debt crisis resolution mechanisms.”
He expressed great encouragement over the IMF’s and World Bank’s emphasis on a sustainable, inclusive, smart and green recovery.