Global Finance Officials Discuss Strategies to Help Debt-Burdened Developing Countries Overcome Poverty, Climate Risk, as Financing for Development Forum Continues
The Economic and Social Council opened the second day of its annual Financing for Development Forum with a high-level meeting of top global finance officials intent on working collaboratively to help debt-burdened developing countries overcome poverty, climate risks and other challenges to their sustainable development.
Lachezara Stoeva (Bulgaria), Council President, said the high-level meeting creates a critical link between institutions and their constituencies. The session aims to help multilateral institutions consistently work together to satisfy the fundamental financing needs of countries working towards the Sustainable Development Goals by 2030. The two topics on the agenda — external debt and support for developing countries as they aim to finance the critical steps needed to live sustainably — require urgent responses. “We are all acutely aware of the risk that debt vulnerabilities pose to economic stability and sustainable development,” she said, adding that 2023 is a critical year as the economic setbacks of the last few years must be reversed.
Carlos Cuerpo Caballero, Secretary General of the Treasury of Spain and Chair of Deputies of the International Monetary Fund’s International Monetary and Financial Committee, said that deputies of the Committee agree that while the worst macroeconomic outcomes contemplated last fall have not materialized, the global economy’s outlook is marked by uncertainty and increased downside risks. Many countries face elevated debt vulnerabilities and persistent food and energy insecurity, which increases inequality. He said decisive, well-calibrated and agile policies, tailored to each country’s circumstances, are needed, with a focus on reducing inflation, maintaining financial stability and rebuilding fiscal buffers. At the same time, social safety nets must be reinforced and long-term growth bolstered. Regarding the Fund’s role, he stressed that progress on debt restructuring is essential. In collaboration with the World Bank, the IMF is helping to strengthen and expedite implementation of the Group of Twenty (G20) common framework on a case-by-case basis.
Miyang Tembon, Executive Secretary of the Development Committee of the World Bank Group and the International Monetary Fund (IMF) — speaking for its Chair — reported on the Development Committee’s 12 April meeting in Washington, D.C. One aim of the meeting was to enhance the World Bank Group’s response to overlapping crises. She noted that over the last 3.5 fiscal years, the Bank Group delivered $330 billion and was the world’s largest provider of climate finance with almost $90 billion. Recognizing the humanitarian consequences of the Russian Federation’s invasion of Ukraine on the global economy, she called for continued economic support. Additionally, she commended the revised Rapid and Damage Needs Assessment, undertaken by the Bank Group in collaboration with Ukraine’s authorities, the European Commission and the United Nations.
Bahtijors Hasans, President of the Trade and Development Board of the United Nations Conference on Trade and Development (UNCTAD) — noting that recent consecutive crises have impacted all countries and slowed the international community’s efforts to achieve transformation and help eliminate poverty — called for efforts to rekindle transformation. He recommended the creation of a public debt registry to ensure debt transparency. Ensuring financing for sustainable development is just a part of the equation, he said. Countries need to work together to ensure transparency, the multilateral trading system must be predictable, the digital divide between developed and developing countries must be closed, and the basic needs of developing countries, such as improvements in infrastructure, must be met. The Trade Development Board is ready to work with the international community to deliver on the Global Goals and achieve the 2030 Agenda for Sustainable Development. “We need to think big,” he added.
The Forum then held an interactive dialogue with executive directors of the World Bank and the Fund that focused on two topics: “External debt” and “Supporting developing countries in dealing with the compounding crises and in financing the SDGs”. That was followed by the Forum’s fourth panel discussion “Fostering debt sustainability by addressing gaps in the sovereign debt architecture”. The Forum’s fifth panel discussion, “Private investment for developing countries”, was held in the afternoon.
The Forum will reconvene again at 10 a.m. Wednesday, 19 April, to continue its work.
Special High-level Meeting
The Council first held a special high-level meeting with the Bretton Woods Institutions, World Trade Organization (WTO) and United Nations Conference on Trade and Development (UNCTAD) on the themes “Supporting developing countries in dealing with the compounding crises and in financing the Sustainable Development Goals (SDGs)” and “External debt”.
It featured presentations by Lachezara Stoeva (Bulgaria), President of the Economic and Social Council; Carlos Cuerpo Caballero, Secretary General of the Treasury of Spain and Chair of Deputies of the International Monetary and Financial Committee of the International Monetary Fund (IMF); Mercy Miyang Tembon, Executive Secretary of the Development Committee, speaking for the Chair of the Development Committee of the World Bank Group and the IMF; Bahtijors Hasans, President of the Trade and Development Board of the United Nations Conference on Trade and Development (UNCTAD); Koen Davidse, Dean of the Board of Executive Directors of the World Bank Group; and Facinet Sylla, Chair of the Liaison Committee of the IMF.
Following the presentations, Sarah Cliffe, Executive Director of the Center for International Cooperation at New York University, moderated two interactive dialogues. Participants of the dialogue on external debt included: Jun Mizuguchi, Executive Director of the IMF; Parameswaran Iver, Executive Director of the World Bank Group; and Maurizio Massari (Italy), Vice-President of the Economic and Social Council. During the dialogue on supporting developing countries in dealing with the compounding crises and in financing the SDGs, participants included: Ayanda Dlodlo, Executive Director of the World Bank Group; Robert Nicholl, Executive Director of the IMF; and Albert Ranganai Chimbindi (Zimbabwe), Vice President of the Economic and Social Council.
Opening the meeting, Ms. STOEVA (Bulgaria), President of the Economic and Social Council, said it forms a critical link between institutions and constituencies and is a key vehicle to ensure all multilateral institutions work coherently and collaboratively on addressing the fundamental financing needs for addressing sustainable development challenges. The two topics discussed today — external debt and supporting developing countries in dealing with compounding crises and financing the Global Goals — require urgent actions and solutions. “We are all acutely aware of the risk debt vulnerabilities pose to economic stability and sustainable development,” she said.
Fruitful dialogues were held in Washington, D.C., between the Council’s Bureau and other Member States involved in co-facilitating key development processes and Executive Directors of the World Bank Group and the International Monetary Fund (IMF)’s Liaison Committee, she said. Discussions have continued with key stakeholders and important areas of alignment have emerged. This is a critical year for sustainable development and setbacks must be reversed. “Today we can take these ideas a step further,” she said. She encouraged all stakeholders to bring firm commitments to advance the Global Goals to the high-level political forum on sustainable development, to be held under the Council’s auspices in July, and the SDG Summit and High-level Dialogue on Financing for Development in September. She looked forward to a frank dialogue to build momentum on the progress already made.
Mr. CUERPO CABALLERO said the Deputies of the IMF’s International Monetary and Financial Committee concurred that the global economy has proven resilient so far, and the worst macroeconomic outcomes contemplated in the fall have not materialized. Nevertheless, the outlook remains subdued and is marked by uncertainty and increased downside risks. Successive shocks, including the Russian Federation’s war against Ukraine, in the context of monetary tightening, are weighing on the recovery. On top of that, recent banking and financial market stresses also reveal potential risks to financial stability. Many countries face elevated debt vulnerabilities and persistent food and energy insecurity, increasing inequality. We need decisive, well-calibrated and agile policies tailored to each country’s circumstances, with key priorities being: reducing inflation, maintaining financial stability, rebuilding fiscal buffers while reinforcing social safety nets, and bolstering long-term growth.
Addressing the role of the IMF in this context, he stressed that making progress on debt restructuring processes is of the essence. In collaboration with the World Bank, the IMF is helping to strengthen and accelerate implementation of the Group of Twenty (G20) common framework on a case-by-case basis. The international community must find ways for stronger coordination on debt restructuring, also for middle-income countries. The Group’s members welcome the new global sovereign debt round table, which aims for greater understanding among key stakeholders, including large emerging creditors like China, India and Saudi Arabia alongside the private sector and debtor countries. These efforts need to be underpinned by improvements in debt transparency and sovereign debt restructuring. The group will direct efforts towards overcoming the food crisis, lifting trade restrictions on food and fertilizer and promoting sustainable investment to strengthen production and agriculture value chains in vulnerable economies. The poverty reduction and growth trust must continue to meet the growing needs of low-income countries, and the International Monetary and Financial Committee members have agreed to redouble efforts to meet 2021 fundraising targets. He called for continued strong international cooperation towards a green, digital and inclusive future.
Ms. MIYANG TEMBON, reported on the 12 April meeting of Development Committee of the World Bank Group and the IMF in Washington, D.C. The meeting addressed the evolution of the World Bank Group to enhance its response to overlapping crises and the revision of its vision and mission; operating model; and financial capacity. Over the last 3.5 fiscal years, the Bank Group delivered $330 billion and was the world’s largest provider of climate finance with almost $90 billion, she said. Recognizing the humanitarian consequences of the Russian Federation’s invasion of Ukraine on the global economy, she called for continued economic support. Additionally, she commended the revised Rapid and Damage Needs Assessment, undertaken by the Bank Group in collaboration with Ukraine’s authorities, the European Commission and the United Nations.
Recalling the Bank Group’s vision of a world free of poverty, she said progress towards this goal requires a focus on sustainability, resilience and inclusiveness. The Committee also welcomed proposals to enhance the Bank Group’s operation and country-engagement models, integrated knowledge support, and capacity-building, while calling for a strengthened value proposition for middle-income countries and a renewed focus on low-income countries, small States and countries affected by conflict and violence. More so, it identified private capital, investment and leveraging the public sector as the core areas of institution-wide action, while underscoring the role of domestic resource mobilization. The Committee also reaffirmed its commitment to ensure the World Bank Group has adequate financial capacities, agreeing to boost such capacities.
Mr. HASANS said that instead of moving towards the achievement of the Global Goals, this decade began with consecutive crises, such as the pandemic, the acceleration of shifting climate conditions and the Russian Federation’s unprovoked invasion of Ukraine. These events have impacted all countries and slowed the international community’s efforts to achieve transformation and help eliminate poverty, he said, calling for efforts to rekindle transformation. He recommended the creation of a public debt registry to ensure debt transparency. While this year offers many opportunities to ensure financing for sustainable development is achieved, financing is just a part of the equation. Countries need to work together to ensure transparency. Predictability in the multilateral trading system is also necessary. The digital divide between developed and developing countries must be closed. The basic needs of developing countries, such as improvements in infrastructure, must be met. UNCTAD will celebrate is sixtieth anniversary in 2024 and its Trade Development Board is ready to work with the international community to deliver on the Global Goals and achieve the 2030 Agenda. “We need to think big,” he added.
Mr. DAVIDSE said analysis confirms that there may be close to 600 million extreme poor people in 2030 if the world does not change course. The World Bank Group’s Collapse and Recovery: How COVID-19 Eroded Human Capital and What to Do about It report stated that there is a lot of lost human capital, as young people did not access learning or employment during the COVID-19 pandemic. He noted the costs but also the gains of climate change action, as in 2022, the Bank provided $32 billion in climate financing. Stating that business as usual will not do, he cited the Bank’s evolution process enabling it to fight world poverty and foster sustainable resilience and inclusive development. Turning to increased financing, he noted it means that the first results of balance sheet optimization will deliver $50 billion of extra resources over the coming 10 years. With the Bank’s annual meetings in Marrakesh scheduled for October, he affirmed that today’s meeting is perfectly timed to inspire efforts further. Partnerships at the global, regional and country levels are key, he stressed, as no development actor can act alone, calling for cooperation between the United Nations system, the private sector, the IMF, other multilateral development banks, the African Union and European Union.
Mr. SYLLA, noting, that despite the slow process, the G20 Common Framework for Debt Treatments has delivered results for Chad — and has further considered Zambia, Ghana and Ethiopia — said the goal is to extend the Framework to middle-income countries. Recalling the recent meeting of the Global Sovereign Debt Roundtable with the participation of traditional, new and private sector creditors and debtor countries, he said the goal was to identify the issues preventing better creditor coordination and impose debt resolution. He pointed out that indebtedness is created by the lack of good governance and transparency in debt processes, adding: “Public debt must be public.” The Fund has continued to step up its concessional lending to its most vulnerable members, he reported, noting that five countries have benefited from the IMF Resilience and Sustainability Trust Fund’s programmes, with 44 other members interested in participating. Calling the funds “victims of their success”, he urged States to provide more resources, while underscoring the need for reaching the fundraising target by the 2023 IMF Annual Meeting in October.
Opening the dialogue, Ms. CLIFFE mentioned the debt discussions held during the recent World Bank meeting in Washington, D.C. She said a core question is what additional efforts are needed to accelerate progress on developing debt relief frameworks for developing countries.
Mr. MIZUGUCHI said debt is causing problems for middle-income countries. Cooperation is very important to improve the transparency of the negotiating process and ensure the credibility of financing frameworks. To improve restructuring, the cooperation of private creditors is needed. Regarding capacity development, he said borrowers need to adequately manage their debt. The IMF is working with the World Bank to improve the sharing of information.
Mr. IVER noted that global debt is about $300 trillion, meaning $37,500 per every person on Earth, and in 2021, total external debt increased by 5.6 per cent to $9 trillion. Borrowing countries from the International Development Assistance owe nearly $1 trillion. Based on the World Bank’s debtor reporting system, updated by 121 countries, 26 countries are classified as low-income countries, with per capita income of less than $1,085, and 95 as middle-income countries. He further noted that 61 per cent of $3.1 trillion in long-term public external debt stock is owed to private creditors. There is a changing pattern of debt in terms of who it is owed to, he noted, calling for a more effective debt reduction process for low- and middle-income countries, requiring cooperation from all partners. The Bank has provided large concessional financing grants and secured positive net flows for countries in debt distress, restructuring the portfolio of undisbursed commitments and therefore helping reduce the interest burden, he said.
Mr. MASSARI, highlighting the risk of the widening divergence and the sovereign debt crisis, recalled the Debt Service Suspension Initiative, managed during Italy’s G20 presidency. He outlined the need for more structural measures to increase efficiency and impact, including the capital adequacy framework review — a key deliverable of Italy’s G20 presidency. Recognizing the urgency of addressing debt vulnerabilities in low and medium-debt countries, he welcomed the Global Sovereign Debt Roundtable and underscored its importance in activating urgent measures for debt management. “SDGs could and should serve as anchors for any debt operation,” he stressed, outlining the key role of transparency, governance and public-private creditor cooperation. Spotlighting the need for a more structured engagement on a debt interface and a stronger dialogue with partner countries, he emphasized the importance of consistency and coherence among all existent processes and institutions.
In the ensuing interactive discussion, delegates and civil society members expressed their concerns with a debt relief framework that penalizes developing countries. Already struggling with the economic fallout of the pandemic and the Ukraine conflict, developing countries are now facing increasing interests and debt loads, many agreed.
The representative of Cuba stressed the need to build a fair, equitable debt relief system that does not favour the interests of the creditors and for a global debt agency to represent the efforts of debtors and creditors. The delegate for India stressed the need to strengthen multilateral collaboration to ensure transparency in the debt negotiation process. The representative of Morocco, noting that rising interest rates this year have pushed several countries into debt default and increased their level of debt, called for an international debt mechanism to address debt restructuring and help these countries address their debt needs. Likewise, the speaker for Argentina said debtors need more tools and information and said the IMF’s surcharge policy must be revised as it is regressive and affecting developing countries.
Responding, Mr. SYLLA said that the G20 Common Framework will not solve debt problems, which requires transparency and good governance. He called for all parties to avoid making debt issues a discussion that is harmful for debtors. He noted that Zambia is simply asking for help in solving its problems — as when you go to a barbershop, you want the parties to stop quarrelling so that you can be properly shaved.
Ms. DLODLO said it is worrisome that only 2 out of 48 Sub-Saharan African countries are on track to achieve some of the Sustainable Development Goals. Recognizing the lack of resources as one of the main reasons, she said the World Bank Group has provided knowledge and finance to mitigate these issues. Many low- and middle-income countries have no or limited access to capital markets and domestic resource mobilization to finance the Global Goals, she said, adding that official development assistance (ODA) has declined to 2016 levels. Recalling that the private sector has been identified as the Sustainable Development Goals’ main financing mechanism, she noted that private sector financing has so far been sub-optimal. “The time to retake the international financial architecture is now,” she stressed, encouraging the United Nations to collaborate with the World Bank Group and the IMF, while also bringing the stakeholders to the round table for a “win-win” resolution.
Mr. NICHOLL said that to advance the Global Goals it is necessary to rely on good governance and better policy decisions that aim to achieve global growth. He stressed the need to help countries manage their debt and tackle climate change through mitigation measures. Statistical capacity is key and financial assistance can only be helpful with the proper data available for all stakeholders. He said the Fund has delivered targeted concessional financing to countries in need, such as those hit by public health emergencies. Strong economic growth is crucial, he said, adding that the international community cannot afford distractions, such as conflicts or trade fragmentation.
Mr. CHIMBINDI called for sharing prosperity between the Global North and South, echoing United Nations Secretary-General António Guterres’ comment that the global debt architecture was designed for a world that no longer exists. The world needs a course correction to create a new system for adequate, predictable and sustainable financing, or risks creating a lasting sustainable development divide. The aid provided is not enough, and dealing with compounding crises requires new tools, adaptability, flexibility and resilience-building. He noted that a focus on gross domestic product (GDP) creates a disconnect between what is discussed in New York and what is discussed in Washington — meaning parties are looking at the same problems with different points of emphasis. He asked what is being done to ensure that many more least developed countries are able to graduate, to end extreme poverty, and about the role of the WTO, IMF and World Bank Group towards those goals.
MAHMOUD MOHIELDIN, Executive Director for Arab States and the Maldives at the IMF, summarizing the interactive dialogue, underscored the importance of funding and an efficient private sector with greater support from multilateral development banks.
In closing remarks, Ms. STOEVA said: “Our world is facing an unprecedented polycrisis and the SDG Agenda is under threat. We must act now.” Reiterating the importance of a fair and efficient international financial system, she said the current international financial architecture remains inequitable and unfavorable to developing countries, notwithstanding recent expansions of the global safety net. The Common Framework fell short of meeting its intended expectations, she added, noting that liquidity provision remains a challenge. “Despite the difficult challenges our world is facing, the interventions we heard today in this session gave me hope,” she stressed, recalling that the role of Forum is to encourage dialogue between all stakeholders and bring them to convergent solutions.
Representatives from Paraguay, Chad, China and Indonesia also spoke, as did a representative of the European Network on Debt and Development.
Panel IV
The Forum then held its fourth panel discussion on “Fostering debt sustainability by addressing gaps in the sovereign debt architecture”. Opening with a keynote address delivered by Joko Widodo, President of Indonesia, the panel was moderated by Ms. Cliffe, Executive Director of the Center on International Cooperation at New York University. The panellists included Shehan Semasinghe, State Minister for Finance of Sri Lanka; Naadir Hassan, Minister of Finance of Seychelles; Abdelkerim Ahmadaye Bakhit, President of the Economic, Social, Cultural and Environmental Council of Chad; Christophe Guilhou, Director for Sustainable Development of the Ministry for Europe and Foreign Affairs of France; and Robert Powell, Representative of the IMF to the United Nations. Jason Braganza, of the African Forum and Network on Debt and Development, participated as the lead discussant.
Mr. WIDODO, via a pre-recorded video statement, said 52 developing countries are experiencing debt distress and 25 of them have to use 20 per cent of their respective budgets to pay off their debts. More so, 175 million people are at risk of falling into poverty by 2030. “The world needs a more just debt architecture,” he said, underscoring the importance of debt restructuring. Noting that debt and restructuring should not be used as geopolitical tools to control developing countries, he said collaboration among creditors, including multinational development banks and the private sector, is crucial. Underlining the importance of debt transparency and public accountability for debtors and creditors, he highlighted the need for debt risk management and structuring accuracy. “A burden-sharing, not a burden-shifting, paradigm is needed,” he stressed.
Mr. SEMASINGHE laid out the numerous issues, from the pandemic to rising interest rates and tax cuts, that had pushed Sri Lanka into a debt crisis. Sovereign debt restructuring is a complex process that involves many issues and partners. The country’s high debt is negatively impacting its economic growth. Sri Lanka lost access to international credit markets in 2020 and additional economic and financing constraints were felt across the country, which is undergoing a debt restructuring process. He said he was optimistic about a successful outcome that would include all creditors. Cooperation between countries and agencies is very important. Multilateral efforts of cooperations are crucial. Yet every country is unique. With 64 countries facing debt stress, there is no one model and the debt solutions must be developed specifically to meet the needs of each country. Reforms to the multilateral debt financing systems are necessary, he said, urging everyone to take collective action so countries do not encounter a vicious cycle of increased debt and default.
Mr. HASSAN said small island developing States are among the most vulnerable in the world, highly dependent on international trade, tourism and ODA, and lacking access to international financial markets. Many of them face high public debt, further limiting investment in critical infrastructure and social services. These States lack access to financing on favourable terms as they are not considered credit-worthy by international financial markets, creating a vicious cycle of high-interest borrowing, and they lack the capacity to manage their public debt, eroding trust in Governments. Solutions include providing access to affordable financing in the short term, including concessional loans and debt relief, and helping States improve public debt management in the long term, he said.
Mr. BAKHIT said Chad has seen a rapid increase in its domestic debt due to price changes in oil, which is the primary export of the country. This has led to economic contraction and increased unemployment, he said, noting that 76 per cent of the country’s GDP is debt. To deal with it, the Government has implemented programmes, negotiated with creditors and focused on decreasing interest rates. Chad has also reduced its public expenditures to cut fiscal gaps, addressed corruption and undertaken efforts to diversify its economy. More so, the Government has encouraged other sectors — agriculture, manufacture and tourism — to expand through economic diversity programmes. Underscoring the importance of economic diversification, he encouraged better synergies between various institutions and the private sector.
Mr. GUILHOU said debt instruments for climate action can be used to suspend debt payments when a country faces a severe shock, such as a tsunami or hurricane. They can create fiscal space for a country by providing temporary liquidity so funds can be used to deal with emergency response measures. He urged all partners in debt restructuring programmes to move forward and follow the parameters outlined by the IMF. More work needs to be done to create tools for debtor countries. There can be improvements in the sharing of information, for example, to reduce delays for debtor countries. He said progress in debt relief programmes is ongoing and he pointed to the experience of Chad. Data transparency is key and collaboration between debtors and creditors is crucial. France supports all efforts to improve transparency. He also pointed to the debt transparency tools provided by the Organisation for Economic Co-operation and Development (OECD) as very important models.
Mr. POWELL said debt vulnerabilities have increased, particularly in commodity-importing countries, with 15 per cent of low-income countries already in debt distress and 45 per cent facing debt vulnerability. However, the situation is not as alarming as it was in the 1990s. Lowering debt burdens before they become systemic should be a key priority for the international community. He noted that increasing fiscal space by boosting domestic revenue mobilization remains more critical than ever. Fiscal adjustments should include reductions in non-priority current spending to protect social safety nets and the vulnerable. It is also important to improve debt resolution frameworks, and the international community should step up efforts on improving restructuring processes to ensure debt relief is delivered in a timely and efficient manner. Citing progress with Chad and in discussions with Zambia, Ethiopia and Ghana, he called for prompt creation of creditor committees, greater clarity on timelines, debt service standstills during negotiations, and the importance of debtors having a voice.
Mr. BRAGANZA, recognizing that debt crisis disproportionally affects people in the Global South, said “there is something very wrong with the global system that increases vulnerabilities and poverty of developing countries”. Noting that the debt situation of the Global South is not of their own making, he said the G20 Common Framework for Debt Treatment is not working for developing countries. To this end, he underscored the need for a radical debt architecture reform agenda with real solutions, reiterating the call of civil society organizations for a multilateral framework to address consensus-building on principles of responsible borrowing and lending. This should address the gaps in transparency and help create a publicly accessible loan and debt database, while also facilitating debt audits, he said. The debt architecture should also assess systemic risks caused by unregulated or inadequately regulated financial sector instruments and actors.
In the ensuring interactive dialogue, delegates and representative from civil society stressed the need for reform of the international debt relief architecture so countries do not repeat the cycle of increased debt and default.
The representative of Nepal said the least developed countries need adequate debt financing, debt relief and debt restructuring, without detracting from ODA resources. He urged that grants, rather than loans, be made a priority for these countries.
The representative of Spain noted that the percentage of countries at risk has doubled since 2015 and reform of the international financial architecture is crucial. The G20 countries should look at past and current debt initiatives to improve existing debt restructuring initiatives. Breaking the cycle of sovereign debt accumulation is a matter of political will.
A representative of the South Centre said developing countries have been impacted by external shocks and locked out of capital markets. With greater liquidity, they might be able to avert default, yet many of their domestic banking sectors are in crisis. It is necessary to reform the international debt architecture.
Also speaking were the representatives of Paraguay, Argentina, Canada, China and the Philippines, as well as the African Union and the Red Latinoamericana por Justicia Económica y Social.
Panel V
In the afternoon, the Forum held its fifth panel on the theme “private investment for developing countries”. Opening with a keynote address by Paul Kagame, President of Rwanda, the panel was moderated by Werner Hoyer, President of the European Investment Bank, and featured panellists Neal Herman Rijkenberg, Minister for Finance of Eswatini; Pedro Manuel Moreno, Deputy Secretary-General of UNCTAD; Nils Bolmstrand, Chief Executive Officer of Nordea Asset Management; and Karen Fang, Managing Director and Global Head of Sustainable Finance of Bank of America.
Mr. KAGAME, via video message, said concerted action towards sustainable development is required from Governments and multilateral institutions — but the private sector is equally critical. In preparation for the high-level political forum on sustainable development later this year, the international community needs a strong consensus on scaling up private sector participation in sustainable infrastructure. Rwanda is facilitating the process with Portugal. He noted that private investment begins with sound, responsive macroeconomic management by Governments and central banks, which is currently challenging. Support from international financial institutions to developing countries is critical, while open, transparent economies that deter corruption will attract higher levels of investment and growth.
However, he called on investors to look beyond often unfounded assumptions of the risk profile of developing countries, especially in Africa. Sustainable development requires patient long-term capital, and de-risking instruments already exist, he stated. Privatization of public enterprises can also be a strategic entry point. He called on stakeholders not to dwell on challenges and uncertainties — which are always there — but put the accent on concrete actions on tangible progress towards the Sustainable Development Goals in the months and years ahead.
Mr. HOYER recalled that the European Investment Bank has a long history of supporting private investment that drives economic development, innovation and employment. Small and medium enterprises represent more than 90 per cent of business and over 50 per cent of employment worldwide, he said, adding that supporting them is the Bank’s key focus area. The Bank is helping to address a widespread market failure by building on its long-standing expertise and partnership with banks, microfinance institutions, and funds to inspire their drive to innovate. More so, the Bank is stepping up its support through targeted financial instruments and blending solutions. Together with the European Commission and other partners it is developing a Global Green Bond Initiative to attract private investment and raise long-term capital for credit infrastructure in developing countries. “This is the kind of innovation I would like to see more often,” he said, underscoring the critical role of private investment.
Taking the floor next, Mr. RIJKENBERG said that in 2018 Eswatini’s economy was on an unsustainable path with a fiscal deficit of 7.5 per cent, while its economy was suffering from sluggish growth of 2 per cent. Together with the IMF, the World Bank and the African Development Bank, the country put together a medium-term framework to reduce its fiscal deficit within three years. Additionally, the Government formulated a strategic road map to attract foreign direct investment and created a post-COVID-19 recovery strategy by engaging with the private sector. It also set a small and medium enterprise export guarantee scheme and adopted a more client-centric approach, which led to additional investment, mainly from the domestic private sector.
Mr. MORENO emphasized that in recovering from the COVID-19 pandemic, many developing countries had to significantly stretch their budgets. Foreign direct investment, he noted, continues to be an important source of external finance, as in 2021, it reached nearly $850 billion — more than half of global flows, an increase of 30 per cent compared to 2020. Preliminary data for 2022 shows a marginal increase of 5 per cent, while the outlook for 2023 appears weak. On the bright side, the sustainable finance market continues to grow, including pension funds and insurance companies and sovereign wealth funds. Developing countries need to have a pipeline of bankable sustainable development projects, requiring Government strategy and expertise. Investment promotion agencies are best suited to work with national and local authorities on preparing projects and targeting investors, and he noted that UNCTAD has been working in various sectors in India, Kenya, Angola, Eswatini and Uganda. He recalled that investing in sustainable development is also the focus of the upcoming eighth World Investment Forum in Abu Dhabi in October.
Mr. BOLMSTRAND, noting that private institutions and private capital are eager and ready to be a part of the solution, said it will take political leadership and private capital to resolve the global challenges. “Behind private institutions and capital, you have ordinary men and women,” he said, noting that assets represent postponed consumption, entrusted by ordinary people. To this end, he underscored the importance of the adequate risk-return process, political leadership and blended finance. To release private capital and achieve scale, he stressed that standardization, liquidity and transparency in investments are needed.
Ms. FANG said emerging markets should account for at least $1 trillion annually, but many of those countries in the Global South face macroeconomic challenges and headwinds — challenges including climate, biodiversity and debt, with rising inflation in a geopolitically unstable environment. Blending private sector capital with multilateral development banks, Governments and other public sector capital requires finding the most efficient way to stop talking and start doing more and celebrate successful examples. She stressed that private sector capital is eager to engage in efficient ways to collectively accomplish the massive task of generating trillions of dollars to help an inclusive transition to a global low-carbon economy and even net-zero economy by 2050. Citing the United States Inflation Reduction Act — aiming to reduce the green premium — she called for leveraging developed country incentives and regulations to drive down the premium of low-carbon emerging technologies and reduce carbon emissions — making them as cheap and affordable as possible to create a global tool to that end. An inclusive transition in emerging markets requires ensuring that de-risking is efficient in Africa, the Caribbean and South-east Asia so the initiatives are not one-offs, and inviting in private sector capital. She noted that the Bank of America has been part of the United Nations Global Investors for Sustainable Development Alliance and other initiatives and task forces to develop consensus on blending in private sector capital, pointing to tremendous success in some countries.
The representative of the Society for International Development and the Civil Society Financing for Development Mechanism said the Global South countries are facing systemic and structural challenges, including the impact of the climate emergency, commodity dependence, unsustainable and illegitimate debt traps, and tax evasion and avoidance by transnational corporations, all of which are consequences integrated in the design of the current international financial architecture. Noting the risks in the behaviour of private finance actors and large businesses, such as a profit-seeking focus, short-termism, and “SDG washing”, she said that instead of focusing on private finance, the focus perhaps should be on the mobilization of public resources that are accountable to people’s needs and demands and responsive to national development priorities. She called for, among others, a United Nations intergovernmental tax body and a United Nations tax convention, as well as a debt workout mechanism under the auspices of the Organization that is transparent, binding and with a timely multilateral framework for debt crisis resolution. The international community needs an international financial architecture that is guided by the well-being of people and the planet instead of the profitability of corporations and the financial sector, she stressed.
In the ensuing interactive discussion, delegates and civil society members addressed the question of attracting and enhancing private investment, while outlining the importance of domestic resource mobilization.
The representative of the United States, recalling that her country is the largest provider of ODA, detailed measures to mobilize private sector investment for developing economies, including by increasing confidence in markets and providing political risk insurance.
The representative of Zambia, however, spotlighted the challenges her country faces in mobilizing private capital, adding that Zambia is open to policy and regulatory review and has undertaken reforms to foster an environment conducive for private investment.
The representative of Gestos said private sector capital allocation for the Sustainable Development Goals is inefficient because it involves monopolies, oligopolies and transnational corporations that tend to exploit loopholes of tax evasion. Underscoring the need for creating conditions for responsible private sector investment, he called for enhanced civil society participation.
Mr. RIJKENBERG, drawing on national examples, said that measures to increase taxes often have devastating consequences on the ground. Noting that tax money comes from economic activity, he encouraged States to generate activity to increase their tax bases and attract investment from the private sector.
Following this stance, Mr. MORENO said: “For financing we need funds.” He further noted that the SDG Stimulus is a way of attracting funds from different sectors. To this end, Ms. FANG underscored the importance of collaborative action, while Mr. BOMSTAND emphasized the need for political solutions and multilateralism.
Several delegations also highlighted the importance of public-private partnerships, technical assistance and international cooperation to enhance investment opportunities. The representative of Belize said multilateral development banks can play a catalytic role, while the representative of the Society for International Development, noting that taxation systems have been developed to suit the interests of businesses, called for strengthening domestic resource mobilization and taxation laws.
Representatives of Indonesia, Bangladesh and Honduras also spoke, as did an observer for the European Union and a representative of the European Network on Debt and Development.
In closing remarks, Mr. HOYER noted that private sector investment is clearly critical for developing countries to foster sustainable growth and achieve the Sustainable Development Goals. He cited insights provided by the representatives of Eswatini and UNCTAD and in the interactive discussion, as well as on financial instruments from Nordea Asset Management and Bank of America speakers, and about the European Investment Bank’s partnerships to help small- and medium-sized enterprises with financing on beneficial terms.