FfD4: Time for Ambition for a Multilateral Legal Framework on Debt Under the Aegis of the UN

Description of the event

The COVID-19 pandemic, the sluggish performance of the global economy coupled with high interest regimes, and the climate emergency have acutely increased the urgency for addressing unsustainable and illegitimate debt and responding to the growing call for debt cancellation.

UNCTAD has noted these interrelated and global crises have led to an increase in total government debt (domestic and external) in developing countries, from 58 to 65 per cent of GDP in 2019–2021. At least 108 developing countries have experienced higher levels of debt following the pandemic, with 3.3 billion people living in countries that spend more on interest payments than on education or health as of 2023.

The risk of debt crisis is being faced by middle income countries too, aside from low-income countries. As such, mechanisms, processes, and commitments towards debt reduction must also include solutions for middle income countries taking into account peculiarities in their debt situation. Vital public financial resources are being allocated today to external debt repayments at the expense of domestic health, social, economic financing, and climate resilient needs. In Africa, more than half the continent is either in debt distress or at high risk of debt distress and is faced with still having to prioritise creditors than its people.

The impact of a creditor centric debt architecture is to lock Africa’s transformation in a perpetual state of dependency. It is evident that current ad-hoc and creditor-centric international initiatives to address the debt resolution are insufficient and existing debt sustainability assessments inadequate, as they disregard human rights, SDGs, gender equality or climate investment needs. The United Nations, with the core mandate to address critical global issues, and the fact that it is neither debtor nor creditor itself, is the only inclusive multilateral and democratic space that has the legitimacy and competence to discuss and agree a multilateral legal framework to prevent, address sovereign debt crises and stop the vicious spiral of debt.

In this context, it is urgently necessary to change gear beyond theatrical discussions on debt sustainability that ultimately only reinforce the status quo. The 4th FfD Conference provides the unique opportunity to establish a multilateral legal framework under the auspices of the UN that would comprehensively address unsustainable and illegitimate debt, including through extensive debt cancellation.

The United Nations should also lead on further supervision and regulation of credit rating agencies. FfD4 will provide the opportunity to convene a universal, intergovernmental commission under ECOSOC with a mandate to examine needed international institutional innovations, including in the UN, required to correct and avert the adverse impacts of CRAs on international finance.