Mr. President, H.E. Minister Paul Oquist (Nicaragua),
Ms. Isabelle Durant, Deputy Secretary-General of UNCTAD,
Mr. Richard Kozul-Wright, Director, Division on Globalization and Development Strategies, UNCTAD
Distinguished panelists and participants,
I have the honour to deliver this statement on behalf of the Group of 77 and China.
The second session of the Inter-Governmental Group of Experts (IGE) on the Financing for Development is being held at a particularly critical juncture when developing countries are facing challenges of debt crises.
The Group appreciates valuable work done by the Secretariat in this important area. We also thank the Deputy-Secretary General of UNCTAD for her remarks. We would have benefitted from the presence of the Secretary-General and his insights into this important area of work.
Total external debt stocks of developing countries are estimated to have reached USD 7.64 trillion in 2017, having grown at an average yearly rate of 8.5 percent between 2008 and 2017. In 2017, almost 14 per cent of developing country export revenue went into debt servicing, on average. These aggregate figures mask growing financial and debt distress in various regions, with some of the more worrying trends being:
- Forty per cent of Low-Income Developing Countries, or about twice as many as in 2013, are now at a high risk of debt distress. Moreover, ten of thirteen countries that have moved into the high-risk category since 2013 are in sub-Saharan Africa. For these countries, both the debt service to exports ratio and the debt service to government revenue ratio have more than tripled since 2011. These developments also reverse much of the achievements of the debt relief initiatives of the late 1990s and early 2000s, since they affect many of the countries in receipt of debt relief measures;
- Small Island Developing States (SIDS) have been particularly affected. The total external debt stocks of SIDS have more than doubled between 2008 and 2017 and average debt to GDP ratios deteriorated across the board, increasing from 28.3 percent in 2008 to 58.2 percent in 2017, with some SIDS facings debt to GDP ratios well above the 100 per cent mark. Average debt service to exports, external debt to export earnings and debt servicing costs as a ratio of government revenue have all more than doubled between 2008 and 2017. For example, debt now accounts for a staggering 163% of exports;
- Total debt stocks in emerging markets grew at an average rate of 9.5 per cent during 2008-2017, a percentage point above the growth rate of developing countries as a group. The relatively easy access of emerging market economies to international capital markets exposes them to a specific set of vulnerabilities, largely driven by non-financial corporate borrowing. From USD 629 billion in 2000, private sector gross debt, ballooned to USD 21.6 trillion by the end of 2016. As recent currency crises in several emerging markets highlight, these economies remain vulnerable to adverse investor sentiments and ‘sudden stops’ of private capital inflows as well as domestic capital flight responding to USD appreciations and policy decisions in advanced economies rather than real and firm specific factors of the domestic economies.
We need to look at the main causes of developing country debt vulnerabilities:
- These developments have to be seen against the background of global debt-driven growth. According to UNCTAD estimates, the ratio of global debt to GDP in 2017 is nearly one third higher than in 2008. Global debt stocks rose from USD 168 trillion at the end of 2007 to USD 247 trillion at the end of the first quarter of 2018. This points to the core cause of developing country financial and debt crises at present. Their fast integration into international financial markets and their consequent high exposure to volatile cross-border private capital flows that are cheap in good times and expensive in more difficult times;
- The post-crisis period has not seen any progress in improving the management of private capital flows for purposes of longer-term productive investment and development. Not only are private cross-border capital flows today at least as volatile as in the 1990s, but they involve larger magnitudes and more pronounced reversals. Such reversals (or ‘sudden stops’) are increasingly driven by external and global factors, such as tightening financial conditions and USD appreciations, rather than by country-specific factors;
- At the same time, transfers, such as aid flows and remittances, have declined. In Low-Income Countries aid flows fell from 2.2 per cent of their GDP in 2013 to 1.8 percent in 2016, and remittances to these economies fell by 6 percent in dollar terms in 2016. More generally, we have to remember that these difficulties are occurring in the context of net negative resource flows from developing to developed countries since the 1980s, of over 16 trillion USD.
We should consider these policy responses to address debt woes in developing countries:
- Borrowing, both by governments and private entities, is an important tool for financing investment critical to achieving sustainable development, as well as for covering short-term imbalances between revenues and expenditures. However, high debt burdens can impede growth and sustainable development. In the context of the 2030 Agenda, developing countries must balance these considerations as they endeavor to mobilize to harness the potential of external finance to support national development strategies while avoiding the risks of external and financial instability;
- In this context, considerations regarding debt sustainability play a prominent role in the Addis Ababa Action Agenda (AAAA) on Financing for Development. The AAAA recognizes the need to assist developing countries in attaining long-term debt sustainability, including through coordinated policies aimed at fostering adequate debt financing, debt relief, debt restructuring and supporting sound debt management;
- In the worrying global economic context described, this IGE tackles an issue of core importance to developing countries: How can their policy space be widened to allow them to use external debt financing as one of many sources of developmental finance rather than an unstable and high-risk burden that undermines their wider growth prospects?
- While initiatives to improve debt management capacities at home are very welcome and timely – and we look forward to their discussion – it is important to recognize that the cause of the current debt vulnerabilities in developing countries lies outside – in volatile international financial markets. It will therefore be important to also focus policy debate on this central cause, and on the fact that financial distress affects all developing countries, independently of their average income levels and stages of development: How can the international monetary and financial system be reformed to provide a more development-friendly environment?
- Discussion on debt sustainability have to be seen in the wider context of financing for development: Debt is only one financing tool, and the more reliable and substantive other financing mechanisms are, the less reliance on indebtedness is required.
We look forward to a rich discussion on these important issues. We will come back with more inputs as we move along in our discussion on other substantive issues.
I thank you.