2.1
How can the UN and the international community address recurring issues surrounding debt and debt sustainability?
There needs to be a new narrative, and new thinking on issues surrounding debt and debt sustainability.
This should emphasize the role of productive public spending, especially in the context of post-pandemic recovery, to shift the mindset of financial markets that focus excessively on the risk implications associated with fiscal deficits. Changing the narrative around fiscal policy could change how financial markets react to public spending, with implications for the level of interest rates in developing countries.
Most countries have not sufficiently aligned their fiscal policy with the SDGs, even though doing so would offer them an opportunity to spend fiscal resources more productively.
Changing the narrative around fiscal policy could change how financial markets react to public spending.
Given the shortage of local financial resources, many developing countries are facing different constraints, such as fear of capital flight, credit ratings, balance of payment crises and devaluation problems. They also need to have capital management techniques that can enable progressive fiscal policies.
UN Photo/Kibae Park
There is also a need to recognize the challenges associated with the behaviour of credit rating agencies (CRAs) and the implications of that behaviour on developing countries. For example, CRAs do not always fully assess the long-term implications of country efforts to mitigate and adapt to climate change-related risks. As a result, countries become very conservative with their spending. In this regard, it is worth considering creating an independent public CRA that can better assess credit ratings in a way that is consistent with sustainable development. This can be done in addition to the regulation of private CRAs.
It is worth considering creating an independent public CRA that can better assess credit ratings in a way that is consistent with sustainable development.
2.2
How can we mobilize financial support to developing countries so that they can build back better?
What are some of the challenges in doing so?
Mobilizing financial support to developing countries
Years of talks on financing for developing countries, such as the “billions to trillions” narrative, use of blended finance and leveraging the private sector, have not amounted to much capital mobilization.
This has to do both with the short-term oriented nature of the financial market, and with the challenges that developing countries themselves face, including the productive use of resources. There needs to be a distinction made between short-term financing issues, such as working with developing countries to ensure fiscal space, and longer-term ones, such as rethinking financing for specific countries or multilateral organizations. More attention should be paid to both the supply side and the demand side of financing. A key question that needs to be answered is where the first round of additional financing should be directed.
More attention should be paid to both the supply side and the demand side of financing.
The phrase "billions to trillions" was coined by the World Bank Group together with the IMF and other multilateral development banks to highlight the scale of the global development challenge. Its 2015 report, From Billions to Trillions: Transforming Development Finance stated that: "To meet the investment needs of the Sustainable Development Goals, the global community needs to move the discussion from "Billions" in ODA to "Trillions" in investments of all kinds: public and private, national and global, in both capital and capacity."
Blended finance refers to the strategic use of development finance to mobilize additional finance geared towards sustainable development in developing countries. It aims to attract commercial capital for projects that contribute to sustainable development, while providing financial returns to investors.
Delivering vaccinations and providing cash transfers to households may be one of the most effective options for the short-term recovery.
UN Photo/Harandane Dicko
On the supply side of financing, one of the key challenges developing countries are facing is resource mobilization.
Low-income countries face the greatest challenge. Data from the Organisation for Economic Co-operation Development Assistance Committee (OECD DAC) on Official Development Assistance (ODA) shows that there was a decline in aid to low-income countries in 2020, but an increase in aid to middle-income countries. In 2021, ODA flows increased for all income groups, but low-income countries experienced only a marginal increase compared to middle-income countries.The response to the pandemic is an opportunity to rethink the criteria for long-term concessional financing (e.g., through ODA), including a reconsideration of how we define vulnerability and fragility. Many countries graduating from access to concessional finance experienced challenges in the aftermath of the pandemic, and many of these have been compounded by the Ukraine crisis. Blended finance has not been very successful in some developing countries as the instrument tries to de-risk at project level, but not at the systemic level. In addition, the inability of countries to propose projects in the pipeline at scale reduces the appeal of blended finance.
There is a need to strengthen institutions at national and regional levels. Developing countries cannot navigate the COVID-19 crisis without strong institutions.
Small countries are constrained in terms of creating viable knowledge systems, and regional institutions can play a role in identifying useful knowledge that countries can benefit from.
Low-income countries face the greatest challenge.
Official Development Assistance (ODA) is government aid that promotes and specifically targets the economic development and welfare of developing countries, often referenced as the main source of financing for development aid.
Latest ODA figures (in real terms) showed that overall net ODA flows increased to all-time highs of 161 billion dollars in 2020 and 179 billion dollars in 2021, (increasing by 3.5 per cent and 4.4 per cent respectively, compared to the previous year). However, net bilateral ODA flows to low-income countries decreased by 3.5 per cent in 2020 and experienced an increase of only 1 per cent in 2021. Flows to lower-middle- and upper-middle-income countries increased more significantly during these years, with an increase of 6.9 per cent and 36.1 per cent respectively in 2020, and 7 per cent and 6 per cent respectively in 2021. (ODA flows to least developed countries increased by 1.8 per cent in 2020 and by 2.5 per cent in 2021).
2.3
How can Special Drawing Rights (SDRs) be best used to support countries most in need?
Are there any areas for improving the use of SDRs?
The role of Special Drawing Rights (SDRs)
Due consideration should be given to how best to use the 650 billion US dollars’ worth of SDRs issued in August 2021.
Of this, 300 billion dollars will go directly to developing countries, and the rest could be redistributed from developed countries that do not need them. The UN and other international organizations should push for the reallocation of SDRs and work with developing countries to put them to good use. The African Development Bank is thinking creatively on how to use SDRs, including as a form of capital. In this regard, it would be beneficial for the UN to explore the redistribution and the use of SDRs as a practical next step. While countries are free to use SDRs in ways that best reflect their own priorities, any reallocation of excess SDRs should contribute to global priorities, based on a recognition that they are not intended for short-term imbalances but for development impact.
The issue of SDRs is a “low-hanging fruit”. There are some obvious areas where SDRs can be used, such as in COVAX, which is hugely underfunded. There need to be certain selectivity criteria, with priority given to countries that are in need and/or in transition situations. These include countries that face the dual challenge of both conflict and the pandemic, and also high and rising inequalities. However, there remains the concern that setting up criteria that favour certain countries would be problematic. Given the limited scale of SDRs relative to the significant demand for financing during the COVID-19 pandemic, the thinking around financing for development must go beyond SDRs.
The UN and other international organizations should push for the reallocation of SDRs.
There are some obvious areas where SDRs can be used, such as in COVAX.
COVAX is a worldwide initiative aimed at equitable access to COVID-19 vaccines. It is co-led by Gavi, the Coalition for Epidemic Preparedness Innovations (CEPI) and the World Health Organization (WHO).
