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As many countries continue to struggle to overcome the human and economic devastation of COVID-19, UN Secretary-General António Guterres calls a meeting of world leaders on Monday, March 29 from 10 a.m. to 1 p.m. EDT to urge the international community to take additional and urgent steps to ensure a solid recovery.
The high-level virtual meeting hosted by the Secretary-General with Prime Minister of Canada Justin Trudeau and Prime Minister of Jamaica Andrew Holness aims to underscore the urgent need for bolder and more concrete steps to provide liquidity and fight against debt vulnerability in developing countries.
The meeting will follow a series of meetings and roundtables held last year to mobilize actions to help economic recovery from the pandemic which has resulted in a series of actions taken by the international community, but which are still unresolved. not sufficient to deal with the persistent and growing crisis. that many countries are facing.
“We are on the brink of a debt crisis. Six countries have already defaulted. One third of emerging market economies are at high risk of fiscal crisis. And the situation is even worse for the least developed and low-income countries, ”said United Nations Secretary-General António Guterres.
“We must now allocate new Special Drawing Rights and encourage countries with strong reserves to reallocate unused SDRs to countries in need; extend the G20 Debt Service Suspension Initiative until 2022; and expand it to include all heavily indebted and vulnerable middle-income countries affected by the crisis. We must also extend the Common Debt Framework to other vulnerable countries, provide additional and targeted debt relief, and address long-standing weaknesses in the international debt architecture. Otherwise, we risk slipping deeper into the worst recession since the Great Depression. “
Jamaica’s Prime Minister, the Right Honorable Andrew Holness, said: “It has now been over a year since the global COVID-19 health crisis began and it has taken a huge toll on lives, means subsistence and the global economy. ”
“The contraction in economic activity induced by COVID-19,” he said, “is seriously affecting debt sustainability, especially in low and middle income countries. In addition to providing essential debt relief and liquidity support, we must create a new international debt architecture that ensures sustainability and encourages the private sector to integrate sustainability into its investment decisions to ensure a stronger recovery. faster, stronger and more resilient.
Prime Minister Holness added: “With the availability of vaccines, we are now in a position to see a path to a global recovery, although we note that all countries must have sufficient quantities and capacities to immunize their populations if we want to achieve inclusive recovery. Let us continue, through strong cooperation and coordination, to take deliberate steps to reverse the devastating economic effects of the pandemic as we prepare for a future of sustainable growth and development. “
“The world must unite to protect people, save lives and defeat COVID-19,” Prime Minister Justin Trudeau said. “Our progress has been remarkable, but we know that we cannot defeat this virus and rebuild better at home unless all countries have the resources to respond and recover from this global challenge. It is only through a coordinated global response that we can cope with the effects of the pandemic and create jobs, economic growth and new opportunities for our citizens and businesses.
New United Nations Debt Crisis Guidance Note
In a new policy brief released today, “Preventing Debt Crises in the Age of COVID-19 and Beyond: Now is the Time to Act,” the Secretary-General says that while many measures taken to date have been important, they have not been sufficient to help restore economic health. Risks remain high for more countries to slip into a debt crisis, especially if the COVID-19 shock is more prolonged and deeper than expected.
The COVID-19 pandemic, which has resulted in more than 2.7 million deaths and over 125 million confirmed cases worldwide, has gone beyond a health and humanitarian crisis to also become a global development emergency without previous.
More than a year after the start of the pandemic, the Secretary-General says the budgetary implications of the crisis are causing debt distress in a growing number of countries and severely limiting the ability of many countries to invest in recovery and development goals sustainable, including urgent. necessary climate action.
He said: “Unless we take decisive action on debt and liquidity, we risk another ‘lost decade’ for many developing countries, putting the SDGs permanently out of reach.”
COVID-19 highlights an increasingly unequal world
The current economic situation has highlighted growing inequalities between and within countries, which significantly threaten global efforts to rebuild better.
Economic shocks linked to COVID-19 have already led rating agencies to lower the creditworthiness of 42 countries since the start of the pandemic, including six developed countries, 27 emerging countries and nine least developed and low-income countries.
Unprecedented health, social and economic measures over the past year have helped control the spread of the deadly virus, save lives and mitigate the socio-economic impact of the pandemic. These emergency policies succeeded in flattening the contagion curve and saving lives, but they also led to the first increase in extreme poverty since 1998, a 4.3% drop in global GDP and loss of an equivalent of 144 million jobs in 2020 alone.
Many countries have responded with extraordinary fiscal support measures, taking advantage of low borrowing costs, with developed countries accounting for the overwhelming share, at around US $ 18 trillion. The international community has mobilized a strong response, including emergency funding from international financial institutions, support for humanitarian partners and access to medical countermeasures such as vaccines.
Many developing countries, and the least developed countries in particular, which suffered from high debt levels before the pandemic, seeing their fiscal and external financing positions deteriorate further during 2020, have failed to been able to provide much needed stimulus support to an adequate extent. .
While some middle-income countries have returned to international bond markets since April 2020, only two countries in sub-Saharan Africa have been able to access the markets; and some countries, including least developed countries with very high refinancing needs in 2021, will not have access to financial markets at affordable rates. In addition, many of these countries have already seen access to foreign currency restricted by capital flight from non-residents and contractions in trade, tourism, remittances and foreign direct investment.
The rapid growth in financing needs and the collapse in income and GDP growth associated with the pandemic have exacerbated debt burden risks across the world. More than half of the least developed and low-income countries that use the IMF’s World Bank Debt Sustainability Framework are now rated at high risk of debt distress or debt distress and, by some estimates, more than one. thirds of emerging market economies are at high risk of fiscal crises.
Need debt relief
Debt relief will be necessary to create space for stimulus investment and to achieve the SDGs, including climate action. Even with high debt, new loans can improve creditworthiness if they finance productive investments. Debt relief can also free up resources, create conditions under which countries can return to voluntary market access, and reduce a country’s overall borrowing costs, with positive effects across the board. ‘economy.
Call to action on liquidity, new financing and ODA
The Secretary-General, in the new United Nations guidance note, calls on governments to provide new concessional financing to developing countries, in particular LDCs and SIDS, to recapitalize multilateral development banks and to accelerate the timetable for replenishment, to meet ODA commitments and to provide financing to developing countries for investment in long-term growth and development.
In support of recent G7 approvals, the brief also calls for a new general allocation of Special Drawing Rights (SDRs) reiterating the need to combine a voluntary reallocation of SDRs from developed to developing countries.
And the brief calls on the G20 to extend the World Bank’s Debt Suspension Initiative (DSSI) until the end of June 2022 and to include middle-income countries, including small island developing states that have been severely affected. affected by the crisis.
The Guidance Note also calls on the G20 to extend eligibility for debt relief under the Common Framework for Debt Treatment Beyond DSSI to other vulnerable countries on a case-by-case basis; and consider other mechanisms that would allow countries to access the Common Framework without creating stigma or compromising the credit rating of beneficiaries, including funds and other instruments within existing institutions. Finally, the brief calls on countries and international financial institutions to seize the moment to address long-standing weaknesses in the international debt architecture.
High-level meeting participants
Hosted by BBC presenter Laura Trevelyan, the meeting of heads of state and government will include opening remarks by the UN Secretary General and Prime Ministers Trudeau and Holness. It will also feature heads of state and government and include the participation of IMF Managing Director Kristalina Georgieva, World Bank Group President David Malpass, OECD Secretary General Ángel Gurría and Managing Director. of the WTO Ngozi Okonjo-Iweala.
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