2021 ECOSOC Forum on Financing for Development (4th Meeting)

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14-Apr-2021 03:57:02
Short-term financing, creation of repo market crucial to assist poor countries facing escalating debt, economic contraction, speakers tell Financing for Development Forum.

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Poor countries are facing severe setbacks on their development paths, encumbered by ballooning debts, high risks of default and limited ability to inject desperately needed liquidity into their markets, economic experts told the Forum on Financing for Development today, as they offered ideas for ensuring a more equitable global recovery from the pandemic during three interactive panels.

Among those underscoring the critical need for short-term financing was Jeffrey Sachs, Director of the Center for Sustainable Development at Columbia University in the United States, who drew a contrast between low-income countries suffering the worst shocks since the Second World War without any borrowing except for what is available through official financing, and countries like the United States, which has injected 23 per cent of its gross domestic product (GDP) into programmes for income replacement, vaccine rollout and hospital support, borrowing at astonishingly low 2 per cent rates on bonds. “For most of the world, this is completely unimaginable,” he said.

On that point, Vera Songwe, Executive Secretary of the United Nations Economic Commission for Africa (ECA), speaking on a panel devoted to unlocking liquidity, raised the risk of a persistent divergence in the world’s economies. While welcoming the International Monetary Fund’s (IMF) recent $650 billion allocation of special drawing rights — a reserve asset created in 1969 to supplement countries’ official reserves — she said Africa’s share amounts to only $33.6 billion. Funds allotted to the Group of 7 (G7) advanced economies, on the other hand, amount to $272 billion. She proposed the creation of a repo market, which would reduce interest rates for developing nations.

Elena Duggar, Chair of Moody’s Macroeconomic Board — addressing a panel on increasing the contribution of private creditors to the pandemic response — said the depth of the economic contraction brought about by the COVID-19 crisis, coupled with lower commodity prices, has created a severe credit shock. For most countries, their credit ratings will ultimately hinge on their ability to stabilize their debt trajectories over time. She predicted a sharp increase in sovereign portfolio debt levels following the pandemic.

Throughout the day’s discussions, delegates spoke to the gale-force headwinds created by these influences. Many argued that while the Group of 20 (G20) Debt Service Suspension Initiative provided breathing space for eligible countries, more durable solutions are needed to resolve debt crises.

Among them was the representative of Antigua and Barbuda, who said her country can no longer depend on tourism to drive revenue. She wondered who would want to lend to a country that is highly vulnerable and likely to default, acknowledging a harsh reality faced by many small nations. Solutions must involve forbearance, in the form of moratoriums or restructuring. She also proposed debt‑for‑climate swaps or State contingent instruments that recognize vulnerabilities and allow countries to handle shocks as they come.

The Forum will continue at 9 a.m. on Thursday, 15 April, to conclude its work.

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