Spillover Effects of War in Ukraine Poised to Further Exacerbate Unsustainable Pacific Debt, Deputy Secretary-General Warns Regional Conference

Following is the text of UN Deputy Secretary-General Amina Mohammed’s video message to the Pacific Regional Debt Conference, held online today at 13:00 Fiji time:

Excellencies, distinguished guests, ladies and gentlemen, I want to express my gratitude to Fiji and Tuvalu for co-convening the first-ever Pacific Regional Debt Conference.

The ongoing COVID-19 pandemic has not only destroyed lives and livelihoods, but has had significant macroeconomic consequences, deepening and increasing inequality across and within all regions.  Yet Pacific small island developing States, or PSIDS, were particularly hard hit by the collapse of a cornerstone of their economies — the global tourism and travel business, contributing to significant increases in their public debt-to-GDP ratios.

While some PSIDS were able to access debt relief through the Debt Service Suspension Initiative (DSSI), many vulnerable middle-income PSIDS remained excluded from accessing this valuable lifeline.  The expiration of the DSSI at the end of 2021 now leaves the G20’s Common Framework for Debt Treatment as the main vehicle for debt relief.

Yet the Common Framework remains plagued by the same challenges as the DSSI and has only been taken up by three countries — none of which are in this region.  This contradicts the IMF’s (International Monetary Fund) recent Debt Sustainability Assessments, which placed a number of PSIDS at a high level of debt distress, in part due to the risk that climate-related events could exacerbate the current debt crisis.

Indeed, while disasters are estimated to cost the PSIDS an average of 2 per cent to 3 per cent of GDP (gross domestic product) annually, a large disaster can suddenly wipe out 30 per cent or 50 per cent of GDP.  Against this backdrop, the war in Ukraine, including its related spillover effects on food, energy, and finance, is poised to further exacerbate levels of unsustainable debt for PSIDS.

Unless urgent action is taken, levels of unsustainable debt in this region could quickly escalate into a debt crisis.  This would not only leave, but push, the region further behind.  To treat and prevent a debt crisis, three urgent actions are needed.

One, we must immediately increase fiscal space to support PSIDS to ensure they can respond to these multiple crises, including by improving access to concessional finance from international and regional financial institutions and supporting the creation of counter-cyclical buffers to strengthen regional fiscal positions.

Second, greater efforts are needed to align finance with the SDGs (Sustainable Development Goals) and with climate action as an integral part of the sustainable development agenda.  This calls for scaling-up the use of innovative financial instruments such as debt-for-climate or nature swaps, directing investments in local economies by sovereign wealth funds, and supporting the full capitalization of the Pacific Resilience Facility, and other similar initiatives.

Urgent efforts are also needed to ensure PSIDS can access climate finance, including through improving capacities in countries and improved application procedures in continued dialogue with climate funds, particularly to bolster investment in adaptation and resilience.  At the country level, the United Nations also stands ready to support Governments in designing and implementing integrated national financing frameworks (INFFs) to ensure finance is invested where it is needed most.

Third, efforts are also needed to reform the global debt architecture, including by lowering the cost of borrowing for vulnerable countries on the market, integrating disaster clauses into debt contracts to provide immediate relief to countries in times of crisis, and seriously considering debt cancellation, on an as-needed basis.

Efforts are also needed to expand access to finance in recognition of the multidimensional nature of vulnerability, including by expanding the Common Framework to include middle-income countries in need.  The United Nations will also continue to advance on its efforts to move beyond GDP, including through the finalization of the multidimensional vulnerability index (MVI).

As successfully illustrated today, efforts to tackle unsustainable debt burdens — in this and other regions throughout the world — will also require the full support of all stakeholders, including debtors, both public and private creditors, and rating agencies.  In this regard, I commend Fiji and Tuvalu for bringing all of these stakeholders on board to discuss the debt problems of the PSIDS and identify suitable solutions.

Let us use the outcomes of this Conference as a litmus test for our ability to meet this challenge, not just for the Pacific, but for developing countries in every region of the world facing unsustainable debt problems.

I wish you all very productive deliberations.

Thank you.