FFD: New Wave of Debt Crises

Statement by Counsellor Daniel Gimenez at the Financing for Development side-event on New Wave of Debt Crises, 17 April 2019.

| Financing for Development

Thank you for inviting me to speak here today, on such an important topic.  

I have had a stake in the debt discussion through my participation on behalf of my country in the debt negotiations, and last fall as a facilitator of the debt resolution in the 2nd committee. So I will offer some perspectives through that lens and Norway, which is a creditor country.   

As several of my previous speakers have mentioned, it is clear that we are facing severe challenges in debt accumulation in developing countries, but also in many other parts of the world. And as we became painfully aware just a decade ago, no country is spared the consequences should a debt crises erupt.

We should of course learn from the lessons of recent history, but there are also some characteristics that make today’s debt situation different, which is important to consider so we can figure out the appropriate response. For example, the backdrop is different. This is described well in the IATF report. The growth prognosis are different, it is significantly reduced. The global interest rates are high. There is disconcertingly also growing inequality, in all regions. The debt situation itself is also different. There is for example a far greater portion of private and corporate debt, in both developing and the developed world.    

No matter the backdrop however, global debt has reached a record high, and debt distress particularly in many developing countries is disconcerting. We are witnessing one of the clearest examples of what can threaten our ability to raise sufficient financing to reach the SDGs.

Many glooming statistics have been mentioned here already, but I will just mention two staggering ones, and it is important that they are brought to our attention , and hopefully also lead to a reaction. According to the IATF report, public debt levels in some MICs has increased to levels last seen during the debt crises of the 1980s. And  just last week at the spring meetings in DC, IMF director C Lagarde informed us that the number of low-income countries in risk of debt distress has doubled from 22% to 44% since the adoption of the Addis Agenda just four years ago. 

Despite the raised awareness of the increased debt accumulation in many countries and of the risk of severe debt distress in several of these, accompanied with the fresh memory of the financial crisis just ten years ago, it is alarming that there is a lacking degree of consensus as to what needs to be done.

The underlying fact of course is that debt is necessary to incite important investments in the SDGs.

But it must be done right and it must be done responsibly. We need a multipronged approach to safeguarding debt sustainability and it should include debt sustainability assessments, strengthening debt management, and improving transparency and data quality.

The IATF report gives us clear recommendations to this extent and it is up to us as member states to take this on with determined action. In the G20, in the IMF, the World Bank, in the Paris-Club, but also here at the United Nations.

My government believes there is a rightful place for a dialogue on sovereign debt issues also here at the UN. The UN can play a role in boosting capacity building in so many areas, and it can also do this in the area of debt management.

Norway has for years been advocating for responsible borrowing and lending through internationally agreed principles and guidelines. We have also recently conducted a national debt audit of all outstanding debts to Norway, the first creditor-initiated national audit of its kind, in order to evaluate how debts to Norway comply with rules, regulations and standards.

This is in line with the Principles to Promote Responsible Sovereign Lending and Borrowing, which we actively supported and financed through the good offices of UNCTAD. These guidelines should complement the G20s operational guidelines for sustainable Financing. This is in line with the mandate we asked in the Addis Agenda, and we cannot afford to delay it any further.

I think that just as with any issue that requires our attention and action here at the UN, we as the international community need to secure some simple ingredients to succeed.

We need first raised awareness around the issue. This we have in abundance with available statistics and data. Then we need the political will to do something about it. And lastly we need the institutional buy-in, such as through appropriate and inclusive foras where we can (not just deliberate but) unify around necessary and effective measures.

This was the case for how the climate issue rose to the top of the agenda many decades ago, it is the case for the process on our efforts to curb illicit financial flows today, and it is the case for how work to increase international efforts to improve tax coordination would come to bear and it will be how we effectively address a looming debt crises.

I would argue that for issues on debt management, some of this is in place, but we are still falling short when it comes to political will. This needs a far greater push. The role of the civil society is crucial in this respect, and many of you here today have played an important part in pushing us to do better.

Also, we will not succeed without the private sector and importantly, the multilateral and regional development banks. The need to enhance debt transparency and improve early warning systems in the lending institutions is part of what increased responsibility entails.

Responsible borrowing and lending is basically about creating a more predictable and sustainable means of financing the SDGs. It also prevents the accumulation of illegitimate and unsustainable debt. To ensure responsible financing, it is urgent that both borrowers and lenders abide by an internationally agreed set of principles and guidelines. It is unfortunately it is still the case that many of these essential precautionary rules are still considered voluntary.

Last but not least, our response to debt challenges are directly linked to our ambition to leave no- one behind and to fight climate change. The debt burdens to increase resilience to, respond and adapt to climate change weighs heavy on LDCs, land locked countries and not least small island states. Cyclone Idai, which recently reaked havoc in three LDCs, illustrates how many countries are disproportionately affected by natural disasters. 

There is a precarious need to mobilize domestic resources and to ensure sustainable debt situation through responsible borrowing and lending in these countries. Failing the most exposed countries, means failing on our ambition to deliver on the SDGs. And this is something none of us can afford.

Thank you.