The annual meetings of the UN General Assembly kicked off this week in New York bringing together the leaders of member states at three summit meetings: the first on the UN Sustainable Development Goals (SDGs), the second on climate action, and the third on financing development.
These meetings are taking place as we mark the halfway point to 2030, the target date of the 17 SDGs that were set out at a special summit meeting in September 2015. The first financing development summit took place in July 2015 and the Paris Climate Summit took place in December of the same year.
The midway mark reflects the state of a world plagued by a plethora of interrelated crises, a growing deficit in trust between nations, and a deterioration in international cooperation. It is hard to find an international meeting these days that is free of references to the detrimental impacts of the mounting geopolitical tensions between established and emerging powers, the war in Ukraine, and the growing influence of far-right as well as populist trends on international cooperation, even as the latter is essential to address world debt, the food and energy crises, global warming, and pandemic control and prevention.
There are 169 targets related to the SDGs. Progress on 140 of these has been evaluated, and the results are devastating: 88 per cent of them are off target. What does that tell us about the state of a world in which ambitious goals have been set to free people from extreme poverty, malnutrition, poor education and healthcare, and other economic, social, and environmental ills, yet only 12 per cent of them are on track towards their 2030 targets?
Lower income countries are worse off than they were in 2000, according to the human development indicators reviewed by World Bank economists Indermit Gill and Ayhan Kose, who write of the “tragedy unfolding in the poorest countries.”
The widespread debt crises in the developing countries hampers their prospects for financing growth and development.
According to the debt sustainability analysis used by the World Bank and the International Monetary Fund (IMF), more than half of low income countries are at risk of, or in debt distress of varying extents.
The US investment bank J.P. Morgan has constructed a measure of debt distress that uses the difference, or spread, between the interest rates paid on debts by a country considered to be a risk and those paid by a country that is not expected to default, such as the US. According to this measure, a country is said to be in debt distress if the spread exceeds 1,000 basis points, or ten per cent. A recent assessment based on it found that 16 emerging markets, or 23 per cent of the countries covered in the study, are considered to be in debt distress.
The IMF’s debt database shows that despite a small decline in the public debt burden during the past two years, it is still very high, amounting to more than 238 per cent of global GDP or around $235 trillion. At the same time, the indebtedness of middle and low income developing nations is accelerating.
Although the figures indicate that private and household borrowing has declined by 12 per cent of GDP, this decline has not offset the impacts of the excessive borrowing during the Covid-19 pandemic. The data also reflect a reaction to the high cost of borrowing and the consequent need to limit indebtedness. This in turn raises the question of the impact of reduced borrowing on financing the establishment and growth of private sector projects, as well as on household financing for real estate, which relies on bank loans.
Not every reduction in debt is benign, especially when it is the result of exorbitant debt costs with no other financing alternatives available, whether savings, reserved profits, direct contributions, or concessional long term financing.
There are no quick and effective global mechanisms for handling sovereign defaults. With the shift in the structure of foreign debt away from the medium and long term loans offered by international financial institutions and some governments that are members of the Paris Club, the developing countries are increasingly indebted to commercial lenders or emerging markets like China.
The traditional arrangements do not work with such lenders. This makes it all the more necessary for the G20 “common framework” to make room for middle income countries as debtors and to bring on board private sector creditors who hold international bonds.
According to a recent study by the US Federal Bank in St Louis, the prospects of a developing country debt crisis have increased. Already, 11 developing countries have defaulted on their debts in recent years, while another 48 to 54 countries (depending on the credit rating agency consulted) are in or at high risk of debt distress.
From the perspective of the US economy, this consequences of a debt crisis of this sort do not pose a major risk, unlike during the debt crisis in the 1980s. At that time, developing nation debts to the largest US banks were 2.5 times the level of their capital, and they had few reserves set aside for possible defaults. Today, the situation is different, because the exposure of the major American banks to developing nation debt is relatively acceptable. This helps to explain why, from the narrowly economic perspective, the US and other developed nations are not particularly worried by the developing nation debt crisis.
In the absence of a viable solution to the debt crisis looming over the emerging markets and developing economies, scattered financing initiatives will not rescue the SDGs, including climate action (SDG13) from a dismal fate in 2023. As a result, the international summit meetings taking place this month have great responsibilities to shoulder. Will they meet the needs of the peoples of the world? Surely, the time has passed for futile statements and empty announcements proclaiming love for the planet and its inhabitants.
What is really needed is a just and efficient world order that reflects the fast changes in the world economies and the balance of power. An international order does not gain credibility merely because it has existed for decades, especially if it lacks vitality and is verging on decrepitude.
*This article appeared in Arabic in Wednesday’s edition of Asharq Al-Awsat.
* A version of this article appears in print in the 21 September, 2023 edition of Al-Ahram Weekly