‘World Cannot Afford to Continue Throwing Developing Countries’ Plans, Futures onto Raging Bonfire of Debt’, Secretary-General Tells General Assembly Debate

Following are UN Secretary-General António Guterres’ remarks to the General Assembly debate on debt sustainability and socioeconomic equality for all, in New York today:

I thank the President of the General Assembly for convening sustainability week.

Today’s topic cuts to the heart of a sustainable future:  debt.

For developing countries, a world of debt means a world of pain.  They are struggling to climb the development ladder with one hand tied behind their backs.

Health, nutrition, education, clean energy and social protection systems are not “nice to haves”.  They are not luxuries.

These systems form the vital bedrock of prosperity, equality and hope for every country.  And they are fundamental to realizing the Universal Declaration of Human Rights, the Sustainable Development Goals (SDGs) and our climate commitments.

We are more than halfway to 2030.  And minutes to midnight for the 1.5°C limit.  Now should be a period of accelerated investment in these systems. Instead, many countries face a tidal wave of financial woe.

Increasingly violent weather is battering communities and economies.

The global economy is crawling to the end of its slowest five-year growth period since the early 1990s.

The COVID-19 pandemic and the global impact of the war in Ukraine slammed the brakes on growth and exhausted fiscal space.

Before developing countries could catch their breath, a global cost-of-living crisis and post-pandemic inflationary shock set in.  Today, we face an estimated financing gap of up to $4 trillion annually to reach the Sustainable Development Goals by 2030.

Last September at the SDG Summit, world leaders agreed to a bold SDG Stimulus of at least $500 billion a year in financing for developing countries to get the Goals back on track and invest in the systems people need.

Leaders also — finally — recognized a fundamental, long-standing truth.  The global financial architecture is broken.

Instead of a safety net, developing countries are faced with an outdated, dysfunctional, unjust system that isn’t meeting their needs.

Their isolation is not an accident.  It is an inevitable result of the way the global system was designed — not a bug, but a feature.

The institutions of the Bretton Woods system were designed for the world of our grandparents, not the world of today — let alone the world of our grandchildren.

Over three quarters of today’s countries were not present at the creation of the World Bank and International Monetary Fund (IMF) — and in many cases, because they were still under colonial rule.  These institutions were designed by the richest developed countries — and remain dominated by them.

Today, many developing countries are stranded in the Bretton Woods system without a map.  I pay tribute to the commitment and efforts made by the management of those institutions and their leaders to improve their performance.  It is unfortunate that their actions are limited by outdated rules and insufficient resources.

No example of the international financial architecture’s failure is more glaring than its handling of debt.  The last four years have been nothing short of a debt disaster.

Developing countries already face the bias of credit rating agencies, while paying much higher interest rates compared to developed countries.

In this post-pandemic period, interest rates have soared to perilous heights.  Development plans are quickly swamped by a tsunami of debt-servicing costs.  And countries are faced with impossible and even heartbreaking decisions about how to allocate funding.

In 25 developing countries, more than a fifth of tax revenue goes towards servicing external debt.  Borrowing costs are so high that 3.3 billion people — around 40 per cent of humanity — live in countries that spend more on interest payments than on health or education.

Any development funding that does flow into countries is quickly dissolved by the unforgiving acids of interest rates and debt service payments.  In fact, in 2022, 52 developing countries paid a total of $49 billion more to external creditors than they received in fresh disbursements.

The warning signs are all around us.  In the past three years alone, the world has seen 18 sovereign defaults in 10 developing countries — the highest in two decades.  And 34 of the poorest countries are either in or at high risk of debt distress.

Throughout this tumultuous period, multilateral mechanisms have failed to meet the moment.

The Debt Service Suspension Initiative was too limited in scope and duration, with suspension expiring just as interest rates went vertical. And private creditors didn’t offer debt service suspension at all.

In some cases, surcharge payments compounded the misery. In total, 17 countries pay more than $2 billion in surcharges per year to the IMF.  And those countries seeking to restructure their debt find themselves mired in protracted negotiations with creditors.

The Common Framework, regardless of intent, has proven to be too slow and too passive.  It excludes too many of the countries it is supposed to support.

To date, only four countries have sought the remedy of the Common Framework — an indictment of its perceived ineffectiveness and inability to garner trust.

One such country, Zambia, endured more than three years of negotiations and red tape to reach a comprehensive restructuring agreement.  Protracted delays mean justice denied.  While waiting for relief, the Government scrambled to consolidate its finances, with a terrible impact on public services like health, nutrition and education.

This is more than counterproductive.  This is immoral.  This is wrong.  This must change.

Debt upon debt, default upon default, surcharge upon surcharge — how many more warning signs do we need before we take action?

Developing countries need a lifeline to pull themselves out of the quicksand of debt.

First — we need actions to bring the SDG Stimulus to life.

We must dramatically scale up affordable, long-term financing, primarily through multilateral development banks.

I renew my calls for recapitalizing multilateral development banks and rechannelling unused special drawing rights for countries in need.

We also need to find ways to leverage the vast sums of callable capital that the shareholder countries’ multilateral development banks have at the ready, sitting in central banks.

This means working with multilateral development banks, central banks and credit rating agencies to greenlight greater volumes of low-cost lending by multilateral development banks to support developing countries as they invest in development.

And we must go further in deploying innovative financing mechanisms, such as hybrid capital bonds to increase lending capacity and attract more private capital to projects and expand the size and reach of loans.

At the same time, we must ensure that any new concessional financing doesn’t evaporate in debt service payments.

I renew my call to creditors to explore debt pauses for vulnerable countries.  I urge international financial institutions to help countries restructure their debt to create space for urgent investments.  And I call on the IMF to temporarily suspend interest rate surcharges at this time of constrained liquidity.

Second — it’s time for wholesale reform of the global financial architecture and specifically, its approach to debt.

From enhancing debt transparency to scaling-up lending in local currencies to developing new debt instruments and faster and fairer restructuring processes, we need to find new ways for countries to borrow boldly and sustainably in times of need.

Above all, we must increase developing countries’ representation across the system and every decision that is made.  They need a seat at the table.  They deserve a seat at the table.  It’s far past time.

This September’s Summit of the Future and next year’s Financing for Development Conference are two critical moments to make progress on these ideas, close long-standing gaps in the global debt architecture and deliver justice to developing countries.

The global financial system is broken — but not beyond repair.

The world cannot afford to continue throwing developing countries’ plans and futures onto a raging bonfire of debt.

Let’s seize this opportunity to forge a more effective and fairer multilateral system — one that responds to the needs of today’s world with agility, empathy and above all, justice.  One that helps rebuild trust in multilateral solutions.  And one fit for the world of our grandchildren — not the world of nearly eight decades ago.