If no action is taken, Poverty will increase and much-needed investments in climate adaptation and mitigation simply won’t happen, the agency warned.
Paper – Avoiding ‘Too Little Too Late’ with International Debt Reduction – highlight the ripple effects of government responses to the recent economic crisis and potential impacts.
‘Small pill’ to swallow
It explains why debt restructuring can’t wait until interest rates fall, or a global recession hits.
“Debt reduction would be A small pill for rich countries to swallow, but the cost of inaction is brutal for the poorest people in the world. We cannot repeat the mistake of providing too little relief, too late, in managing the debt burden of the developing economy.” speak Achim Steiner, UNDP Manager.
54 countries with severe debt problems including 28 of the 50 most climate vulnerable countries In the world.
Despite being home to more than half of the world’s poorest people, they account for less than 3% of the global economy.
Potential Debt Deal
The paper outlines a number of policy actions for debt restructuring, noting that a deal may be in the works.
Market conditions around the globe are changing rapidly. The UNDP said the instability was being fueled by “synchronized fiscal and monetary contractions”, coupled with low growth.
Currently, nearly 20 developing countries are paying more than 10 percentage points above the US Treasury bond yield to borrow money in the capital markets.
At the same time, holders of many developing-economy bonds say they are trading at a deep discount of 40 to 60 cents against the dollar.
Conditions conducive to negotiation
A debt agreement is now possible, UNDP said, as these conditions encourage private creditors to negotiate debt forgiveness under the Common Framework developed by the G20, the world’s largest economies.
“When emerging market bonds traded at 40 cents against the dollar, private creditors suddenly became more open to negotiation. The missing ingredient, at the moment, is financial security from major creditor governments to reach an agreement,” said George Gray Molina, Senior Economist at UNDP.
The article argues that the rich countries have enough resources to end the debt crisis because of their rapid decline in part because of their domestic policies.
This week, G20 finance ministers will meet in Washington, DC, ahead of the annual meetings of the World Bank and the International Monetary Fund.IMF).
UNDP believes the conditions are ripe for creditors and debtors to begin debt restructuring negotiations within the framework of the G20.
The paper proposes a direction, focusing on key areas such as debt sustainability analysis, formal creditor coordination, private creditor involvement, and the use of contingent debt provisions. state to target future economic and fiscal resilience.
Climate funding needed
Furthermore, the Common Framework could shift the focus to a comprehensive restructuring that would allow countries to return to growth, financial markets and progress more rapidly.
UNDP points out that effective debt restructuring is only an important factor in ensuring that developing countries have enough finance to make progress on sustainable development.
The agency says new sources of funding are needed to invest in climate adaptation and mitigation.
