Summit of the Future Action Days: A Sustainable Future for All - Addressing debt challenges for Sustainable Development

Thank you so much. Thank you everybody.

It is really exciting to be here in the Summit of the Future after so much preparation and let me welcome all of you.

Dear Excellencies,

Distinguished Delegates,

Ladies and Gentlemen,

Dear Friends,

So, in 1953, in the city of London, an important agreement was signed, to oversee the repayment schedule of German debts after World War II.

There, the delegates to that meeting – many of them policymakers with memory of the Versailles agreements after the First World War – took a momentous decision.

They decided, that to not derail Germany’s postwar economic recovery, the highest ratio of debt servicing to export earnings could not exceed 5%.

Why did they do this? Because the policymakers of that era understood, from the bitter lessons of history, that crushing debt could destabilize a nation, even a continent. They knew that debt could choke off recovery, sow resentment, and pave the way for extremism.
 

Your excellencies,

Today we stand at a crossroads. The specter of debt hangs over the Global South, threatening to derail the hard-won progress of generations. The data speaks for itself.

Over the past 6 years more than two thirds of the world’s developing countries experienced a deterioration in their external debt sustainability. Two thirds.

In 2023, over 90% of all developing countries were paying more to service their debt, as a percentage of their export earnings, than the 5 percent limit set in the London Agreement. 90%. The median external public debt service relative to exports is now 16% in the Global South.

Let me repeat that. Almost all developing countries, home to billions of people, are today spending more than triple on debt services, than what was deemed acceptable for post-war Germany.

This is not just a statistic. It means governments and families being forced to make impossible decisions. And here’s the number that we have so many times put forward — that 3.3 billion people live in countries that today spend more on debt service than on either health or education. Except for China, interest payment outweighs climate investment in developing countries.
 

Your Excellencies,

Thanks to COVID-era debts and rising interest rates, developing countries debt service payments reached 850 billion dollars last year. This is, to have an idea, 8 times the annual lending of all Multilateral Development Banks together.

Last week’s half percentage point cut by the Federal Reserve was a very good thing, which we welcome. But 2024 may still be the toughest year of the cycle, given that developing countries face a wall of repayments this year. And then they are rolling over debts at much higher interest rates than what they borrowed at.

Which is why advancing rapidly on debt restructuring is so urgent.

Since 2022, resource transfers to the Global South have become — hear this — negative – that is, more money is flowing out than flowing in – to the tune of 50 billion dollars last year. Countries with net debt outflows have more than doubled since 2014. This is like a reverse blood transfusion from the poor to the rich, from the weak to the strong.

And borrowing costs are still very unequal. African interest rates are on average 4 times the US average, and more than 10 times Germany’s.
 

So, Your excellencies,

If we all know these numbers, and we all know these numbers, why is there no action?

There is no action on debt as a crisis because markets are not suffering, people are. This is not a financial crisis but a development crisis.

Second, because we have yet to go beyond the blame-game. These countries are not at fault for COVID, or war-induced inflation, or the rise of interest rates. The only moral hazard here is the hazard of inaction.

And lastly, we are complacent. Because we are too optimistic about aggregate numbers. Debt distressed countries are not having a soft landing, but a crash landing. Post-covid cumulative output losses amount to 40% of GDP in small island developing states, and 30% in least developing countries.

The truth is that this debt and the development crisis is a symptom of a larger systemic failure. It is the failure to act and to prevent. It is the failure to use at scale all the tools at our disposal in the global financial system and to embrace the changes needed in a system that was designed in a different era, for a different world.

This is what the Summit of the Future is about.

Countries, especially developing countries, have pushed for a strong and action-oriented language on debt and the international financial architecture in the Pact of the Future, and especially we see this in the Action 50 and 51, in anticipation also of next year’s Fourth Financing for Development Conference.

Countries recognize that part of the issue we face is an issue of governance, that transcends debt and affects the entire international financial architecture.

At their foundation, the boards of the IMF and the World Bank had 12 seats for a total of 44 countries. Today, each board has 25 seats for 190 countries. If the original proportion were maintained, these bodies should now have 52 seats – double their current size. Maybe 52 is too much, I give you that. But between 25 and 52 there is a lot of room for improvement, no?

Financing gaps are widening – in 2015, we measured the SDG financing gap in 2.5 trillion dollars for the Global South; today is at 4 trillion.

Without a system for global taxation, illicit financial flows are growing, with Africa alone reporting outflows of close to 100 billion dollars per year, twice as much as it receives in Foreign Direct Investment or ODA.

Multilateral Development Banks finance has not kept with global growth, with World Bank lending representing today one fifth, one fifth, of what it was in the 1960s in relation to world GDP. That is why the Multilateral Development Banks financial support to developing countries has not been able to balance the outflow of private flows from these countries.

We also know that international investment flows into SDG-related projects are falling at double digit rates. Last year, 2024, the FDI to the SDGs in water fell by 10%. And lastly, the Global Financial Safety Net is not providing effective coverage to countries, in an increasingly shock prone world.

So, this ultimately leads to growing inequalities and growing levels of debt.
 

So Excellencies,

Systemic failings require systemic fixes. 

We need a global financial architecture that is fit for purpose, that recognizes the interconnectedness of our world, and that places the needs of people and planet at its heart.

First and foremost, we need a comprehensive approach to debt relief. This must involve meaningful debt restructuring, moving beyond the piecemeal and ad-hoc approaches, towards a more predictable and transparent framework that provides certainty and relief to struggling countries.

The G20 Common Framework and the round table set by the IMF are steps in the right direction but are still too slow, too complex, and too limited in its scope. One of the countries for example that have gone through this process, has been waiting for three and half years and still not one dollar of relief has been disbursed, despite recent advances. We need a renewed, ambitious approach, for the restructuring process but also one that tackles the root causes of the debt crisis, not just its symptoms.

This new approach must include, for the countries that choose a formal restructuring process, an automatic debt service standstill, and it must also ensure the participation of all creditors, including private lenders, on comparable terms.

Furthermore, we need a mechanism for debt cancellation when debt is truly unsustainable. This is not a radical, nor a new idea. The Highly Indebted Poor Country Initiative (HIPC) is a precedent. I fully understand this must be an exceptional case, but we must recognize when there are exceptional circumstances.

Moreover, we need to apply sound principles on Promoting Responsible Sovereign Borrowing and Lending for all future debts, including transparency and informed decision making.

Steps have been made to introduce innovative clauses such as state-contingent debt instruments, collective action clauses and climate resilient debt clauses. We need to accelerate the pace in this direction.

And very importantly, we need to have a serious conversation about what we mean when we talk about debt sustainability. As it currently stands, Debt Sustainability Analyses, is mostly measured in terms of capacity to pay; but true sustainability is our capacity to pay, grow and develop in a sustainable way so we don’t come back to the same cycle again. Defaulting on your development to not default on your debt is the very contradiction of sustainability.

Lastly, debt-for-SDGs and debt-for-climate swaps, although no panacea, can provide relief from fiscal pressures.

On the root causes of debt, we need to:

1. As outlined in Action 50 of the Pact for the Future, "enhance the representation and voice of developing countries in global economic decision-making and norm-setting.
2. We need to tackle illicit financial flows and tax evasion. This requires greater transparency and stronger international cooperation to ensure developing countries retain their rightful share of resources, and that the proceeds of crime and corruption are not allowed to flourish.
3. And we need to increase the lending capacity of Multilateral Development Banks, mobilize and crowd-in private capital for sustainable development, strengthen guarantees schemes and explore innovative financing. But we also need to improve the conditions for affordable and long-term financing. Short-term financing is not development.

Here, the call of the UNSG for an SDG Stimulus, is essential to build an inclusive global financial safety net, providing developing countries with timely and adequate support in times of shocks. The potential of Special Drawing Rights (SDRs) to bolster this safety net must be fully realized. As its stated now in Action 53 of the Sumit of the Future.

Finally, we need to address the root causes of vulnerability, including climate change, conflict and fragility. This requires bold action to reduce greenhouse gas emissions, scale up climate financing and promote peace and security as also Action 52 in the Summit of the Future states.

So, I finish here telling you Excellencies that they are no easy tasks. They will require political will. They will require courage, and leadership and a commitment to multilateralism. But they are essential if we are to build a world where all countries, regardless of their size or wealth, have the opportunity to thrive. 

The choice is ours.  We can choose a different path, a path of shared responsibility, solidarity and a path of hope.

I thank you.