UN Secretary-General Antonio Guterres highlighted the financial needs of countries, particularly low- and middle-income countries, in their response to COVID-19.
“As we craft a comprehensive global response, action on finance must be central. If countries lack the financial means to fight the pandemic and invest in recovery, we face a health catastrophe and a painfully slow global recovery,” he told a roundtable on “Rebirthing the Global Economy to Deliver Sustainable Development”, Xinhua news agency reported on Wednesday.
COVID-19 is a human crisis. But it also became a development and financing crisis as developing countries face vastly increased demands for public spending exactly at the same time as tax and export revenues, inward investments and remittances are plummeting, said Guterres.
“We are on the cusp of a widespread debt crisis, with many countries faced with an impossible choice between servicing their debt or protecting their most vulnerable communities and fighting the pandemic. Debt defaults can have devastating social consequences. And many countries simply do not have access to financial markets to be able to service their debt.”
The Group of 20 debt service suspension for the poorest countries was a welcome start. But much more needs to be done. Support must be expanded and determined by vulnerability rather than just gross domestic product, he said. “We absolutely need to address the debt concerns of the — mostly — developing countries and a large number of middle-income countries that have lost the capacity to access financial markets.”
Guterres also stressed the need for durable solutions on debt that will create fiscal space for investments in recovery and the Sustainable Development Goals.
Beyond the fiscal shock, the COVID-19 crisis has impacted all the components of external finance: direct investment, exports and remittances. Official development assistance is under pressure as developed countries themselves deal with the fallout of the crisis, he noted.
Uncertainty and a further retreat to inward-looking policies and protectionism could turn today’s sharp decline into a prolonged period of weak external financing. Moreover, as the pandemic disrupts supply chains and trade, there is a danger that some manufacturing will move back to developed countries, further reducing developing countries’ resources, and raising fundamental questions about their integration into the global economy, he warned. “These questions need bold and creative answers.”