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50 of the poorest developing countries are in danger of defaulting on their debt
by C20, Oxfam, UNDP, IIED, Debt Justice, agencies
G20 must tackle the “cost of profit” crisis causing chaos worldwide, says Oxfam.
G20 countries are receiving US$136 million every day in debt repayments from the world’s poorest countries at a time when up to 828 million people are facing hunger.
The “cost of living” crisis is more accurately a “cost of profit” crisis – of rising billionaire wealth and corporate mega-profits – that is driving up poverty, hunger, indebtedness and deprivation around the world, Oxfam says, as the G20 Summit begins in Bali.
“If the G20 are serious about tackling this looming global economic catastrophe they need to put their own houses in order. That’s where the real cause of this crisis lies,” said Oxfam’s G20 Lead Joern Kalinski.
“In reality we are facing a ‘cost of profit’ crisis. The richest are getting richer, while ordinary families and the poorest countries are being squeezed dry,” said Kalinski.
Since the start of the pandemic, poor countries have had to shell out US$113 billion to their rich G20 country creditors, during a time that four times more people died of Covid in poorer nations than in rich ones.
In 2021, on average, poor countries were forced to spend 27.5 percent of their budgets on debt repayment – four times more than on health and 12 times more than on social protection. Even the public climate finance they are getting from rich nations, including many in the G20, are 71 percent loans.
Meanwhile the G20’s biggest corporations are making record profits. Nine out of ten of the biggest fossil fuel companies are headquartered in G20 countries. US corporations are seeing their biggest profit margins since 1950 and have been accused of ‘greedflation’; driving higher inflation through price hikes.
The G20 is home now to 89 percent of all the billionaire wealth in the world – at around US$10 trillion. This has grown by US$1.88 trillion, creating 287 newly-minted pandemic billionaires, since 2020. Energy and food billionaires are currently getting richer by a half-a-billion dollars a day.
Oxfam urges the G20 to acknowledge the consequences that this shocking inequality is visiting on ordinary citizens the world over in the form of mass hunger, death and worsening poverty.
In Somalia, Ethiopia and Kenya historic levels of drought mean that one person will likely die of hunger every 36 seconds between now and the end of the year as the worst-hit areas hurtle towards famine. Women and girls, who are often the main food producers, primary caregivers, and stewards of household nutrition, are at higher risk of hunger.
The Ukraine war is an additional layer to existing problems. While 828 million people face hunger, the world’s main food traders made record profits and food and agribusiness billionaires increased their collective wealth by US$382 billion (45 percent) over the past two years. The United Nations has appealed for US$17.1 billion in humanitarian food security assistance for 2022 but so far donors have only given US$7 billion.
Globally progress in fighting poverty has halted, according to the World Bank, with poverty increasing during COVID-19 for the first time in decades. Inequality has grown too; with the poorest seeing their incomes decline twice as much as the richest.
“Austerity is the exact wrong reaction – a textbook blunder – that is ripping away social safety nets and beating people down into poverty,” Kalinski said.
Recent Oxfam research on inequality shows that despite the worst health crisis in a century, half of all poor countries have cut their share of health spending. Almost half of all countries cut their budget share going to social protection, 70 percent cut their share going to education and two-thirds failed to raise their minimum wage in line with economic growth. Over the next five years, three-quarters of all countries globally are planning further cuts totaling US$7.8 trillion dollars.
143 of 161 countries Oxfam surveyed froze tax rates on their richest citizens, and 11 countries even lowered them. Corporate tax dodging also continues on an industrial scale with an estimated one trillion dollars of corporate profits shifted to tax havens in 2019 alone.
The G20 must tackle the root causes of hunger: extreme inequality and poverty, human rights violations, conflict, climate change and food and energy price inflation. Oxfam says the G20 must develop an economic and social rescue plan that protects the rights of the poorest people and tackles extreme inequality. This means:
Championing systematic strategies to tackle inequality and monitoring progress by rejecting austerity, boosting inequality-busting public spending, making tax more progressive, and increasing workers’ rights and pay.
Widescale debt relief and significant debt cancellation for the poorest countries. Increasing taxes on windfall profits, wealth and corporations. Issuing more Special Drawing Rights, and allocating more to the poorest countries.
Boosting inequality-busting aid. Delivering on climate finance, especially for the most vulnerable countries. Committing to enhancing pandemic preparedness and building more resilient systems.
To halt the worsening hunger crises the G20 must:
Urgently mobilise financial resources into humanitarian emergencies. Address the root causes of hunger crises including climate change, conflict, poverty and inequality, human rights violations and food price inflation.
Ensure that blockades, economic sanctions and military activities in all countries do not hinder the free, safe and reliable transport of food and agricultural supplies, especially in conflict-affected areas. Rebalance the power in food supply chains to create a more sustainable and just food system.
http://www.oxfam.org/en/press-releases/g20-verdict-oxfam-criticizes-g20-lack-action-tackle-extreme-inequality http://www.oxfam.org/en/press-releases/g20-must-tackle-cost-profit-crisis-causing-chaos-worldwide http://www.ipsnews.net/2022/11/g20-summit-missed-opportunity-tackle-global-cost-living-crisis/ http://www.wider.unu.edu/news/press-release-new-research-reveals-close-1-trillion-profits-shifted-tax-havens http://www.icrict.com/press-release/2022/9/16/icrict-declaration-an-emergency-tax-plan-to-confront-the-inflation-crisis-m87sa http://taxjustice.net/press/governments-can-recover-billions-from-tax-havens-by-publishing-withheld-transparency-data/ http://www.transparency.org/en/news/9-fixes-global-standard-beneficial-ownership-transparency-trusts-recommendation-25
http://www.taxjustice.net/reports/state-of-tax-justice-2022/ http://www.ohchr.org/en/documents/thematic-reports/a77169-towards-global-fiscal-architecture-using-human-rights-lens-report http://taxjustice.net/press/un-secretary-general-signals-support-for-un-tax-convention/ http://taxjustice.net/press/un-tax-convention-proposed-at-general-assembly/ http://globaltaxjustice.org/news/civil-society-organisations-support-the-g77-and-china-proposal-on-un-intergovernmental-tax-body-and-the-africa-groups-proposal-on-a-un-tax-convention/ http://www.icij.org/investigations/paradise-papers/global-tax-proposal-gains-ground-at-un-as-oecd-plan-falters/
C20 recommendations to Indonesian G20 Summit. (C20 Indonesia 2022)
(The G20 Summit takes place in Bali, Indonesia on the 15-16 November 2022. C20 represents the views of Civil Society Organisations and is the official input channel to G20 processes. The 86 page C20 policy briefing (Pack) offered below has been led by Indonesian Civil Society agencies with input from over 200 groups from 65 countries).
"During bad circumstances, which is the human inheritance, you must decide not to be reduced. You have your humanity, and you must not allow anything to reduce that. We are obliged to know we are global citizens. Disasters remind us we are world citizens, whether we like it or not.” – Maya Angelou
C20 calls on all leaders of the G20 to make greater efforts to solving the current global situation. Millions of people have been adversely affected by the COVID-19 pandemic. The negative impacts of the pandemic have been compounded by the multiple crises in the food, energy and financial sectors caused by the Ukraine-Russia conflict. Our humanity is at stake and governments, the business and civil society organizations must be committed to promote world peace and uplifting humanity.
The COVID-19 pandemic has disrupted global development and has caused misery to millions of people, especially those in developing countries. Equal access to COVID-19 vaccines across nations has yet to be achieved. As of August 2022 only 20.3% of the population on the African continent have been fully vaccinated; meanwhile half of the countries in Europe have achieved more than an 85% vaccination rate and have already initiated booster shots. The world has barely recovered from the pandemic when new waves of crises mercilessly struck.
The energy, food and financial crises have been exacerbated by the Ukraine-Russia war. The war has already had an impact on the global economy and its social impacts are having profound ripple effects on inequality. We must also remember that due to the war there is a surging number of refugees, displaced persons and more people with physical and psychosocial disabilities.
Recover together, Recover stronger is the commitment of G20 under Indonesia’s Presidency as a principle to navigate policy solutions to the world’s problems. However, it can only be achieved if G20 collaborates with other countries that have the same common goals, are committed to a concerted effort to recover from the pandemic, leaving no one behind, with input and support from civil society organizations.
C20 therefore prioritizes four issues that reflect this principle: Just and Inclusive Global Health Architecture, Climate Justice and Just Energy Transition, Tax Justice and Inclusive Sustainable Finance, Inclusive Digital Transformation. Taking into account the urgency of gender equality, persons with disabilities, humanitarian action, civic space and anti-corruption, the C20 addresses them as cross-cutting issues.
It is with grave concern that we observe how multi-dimensional crises: food, energy, humanitarian, climate change and financial are evolving around us. The much needed global economic recovery from the pandemic has been disrupted. Currently, the world oil benchmark price has risen sharply, economic growth is predicted to fall and various commodity prices have also been significantly affected. Millions of innocent people’s lives have been affected by the invasion of Ukraine.
These crises not only obstruct the development agenda but could potentially foil various goals and targets of global agendas such as SDGs and the Paris Agreement, thus hampering the G20’s efforts to promote strong, sustainable, equal and inclusive global economic growth. C20 therefore calls on the G20 to put aside their differences and prioritize crisis resolution.
This Policy Pack is a product of the C20 which comprises 280 organizations, representing the view of Civil Society Organizations in 65 countries across the 5 continents. http://civil-20.org/about/
* UN Secretary-General’s letter to the G20 leaders: http://bit.ly/3IVSjYE
* Dec. 2022: Recently announced changes to Indonesia's criminal code have raised alarm from civil society agencies for undermining civil liberties and political freedoms:
http://www.thejakartapost.com/indonesia/2022/12/06/new-criminal-code-sets-back-civil-liberties.html http://aseanmp.org/2022/12/07/southeast-asian-mps-denounce-the-inclusion-of-articles-curtailing-freedoms-in-indonesias-new-criminal-code/ http://www.hrw.org/news/2022/12/08/indonesia-new-criminal-code-disastrous-rights http://www.bbc.com/news/world-asia-63885435
UNDP: 50 of the poorest developing countries are in danger of defaulting on their debt.
More than 50 of the poorest developing countries are in danger of defaulting on their debt and becoming effectively bankrupt unless the rich world offers urgent assistance, the head of the UN Development Programme has warned.
Inflation, the energy crisis and rising interest rates are creating conditions where an increasing number of countries are in danger of default, with potentially disastrous impacts on their people, according to Achim Steiner, the UN’s global development chief.
“There are currently 54 countries on our list [of those likely to default] and if we have more shocks – interest rates go up further, borrowing becomes more expensive, energy prices, food prices – it becomes almost inevitable that we will see a number of these economies unable to pay,” he said. “And that creates a catastrophic scenario, with all the social and economic and political implications this carries with it.”
Speaking at the Cop27 UN climate summit, Steiner said any such default would create further problems for solving the climate crisis. “It certainly will not help climate action,” he said. Without measures to help them with debt, he warned, poor countries could not get to grips with the climate crisis.
“The issue of debt has now become such a big problem for so many developing economies that dealing with the debt crisis becomes a precondition for actually accelerating climate action,” he said. “We need to inject targeted liquidity into countries to be able to invest in energy transitions, and adaptation to the impacts of extreme weather.”
The climate crisis is further compounding the problem, he warned, as countries are facing increasing effects from extreme weather. Poor countries are not receiving the funding they were promised from the rich world, yet are facing a growing danger of storms, floods, droughts and heatwaves.
Steiner warned that some developing countries were in danger of giving up on the UN climate talks if developed country governments failed to fulfil a longstanding promise to poor nations of $100bn a year in assistance, to help them cut greenhouse gas emissions and adapt to the impacts of extreme weather.
One of the major issues at the Cop27 talks is loss and damage, referring to the most devastating impacts of extreme weather, which countries cannot protect themselves against.
Steiner said the issue was often misunderstood. “It’s building on something that in many of our countries is an established practice. When extraordinary floods take place, the Government, the taxpayer essentially steps in with support for the damage that has not been recoverable from insurance companies,” he said.
“We have an established practice that the common purse steps in where a catastrophic event happens. But when a Caribbean island has a third of its GDP wiped out in 12 hours through a hurricane, there’s nobody to turn to.”
That was why a loss and damage fund was needed, he said. “That’s where the injustice of climate change becomes so egregious in the view of many developing countries. Not having been even remotely a principal causal factor in the climate crisis, they are now paying an extraordinary price through the damage they suffer.”
Rich countries have the resources to end the debt crisis, which has deteriorated rapidly in part as a consequence of their own domestic policies. These policies have sent interest rates in developing economies skyrocketing and investors fleeing. This is happening while developing economies have large financing shortfalls for fighting climate change. The 54 most debt-vulnerable countries include 28 of the world’s top-50 most climate vulnerable nations.
Spiralling debt in low and middle-income countries has compromised their chances of sustainable development, the head of UN trade facilitation agency UNCTAD has warned.
Rebeca Grynspan said that between 70 and 85 per cent of the debt that emerging and low-income countries are responsible for, is in a foreign currency. This has left them highly vulnerable to the kind of large currency shocks that hit public spending – precisely at a time when populations need financial support from their governments.
Ms. Grynspan – speaking at the 13th UNCTAD Debt Management Conference - explained that so far this year, at least 88 countries have seen their currencies depreciate against the powerful US dollar, which is still the reserve currency of choice for many in times of global economic stress. And in 31 of these countries, their currencies have dropped by more than 10 per cent.
This has had a hugely negative impact for many African nations, where the UNCTAD chief noted that currency depreciations have increased the cost of debt repayments “by the equivalent of public health spending in the continent”.
With interest rates rising sharply, the debt crisis is putting enormous strain on public finances, especially in developing countries that need to invest in education, health care, their economies and adapting to climate change.
“Debt cannot and must not become an obstacle for achieving the 2030 Agenda and the climate transition the world desperately needs", she argued.
Lower income country borrowing costs rise at three times rate of the US, by Debt Justice.
From the early months of this year, the U.S. Federal Reserve has been raising US interest rates aggressively to combat inflation. The dollar has soared on the world’s currency markets. Since 90% of emerging market debt is denominated in dollars, a stronger US currency makes repayments punitively expensive. Borrowing costs for highly indebted countries have shot up.
New analysis by Debt Justice finds that average interest rates on new borrowing by lower income countries have increased by 5.7 percentage points this year, almost three times the rate of increase in US government borrowing costs. Furthermore, for two-thirds of lower income countries where there is data, interest rates are so high they are probably unable to take out new loans from external private lenders.
The worsening of financial conditions, alongside the climate emergency, is intensifying debt crises in many lower income countries. The number of countries defaulting on or restructuring debt could rapidly increase.
Heidi Chow, Executive Director of Debt Justice, said:
“Many countries were already cutting essential spending to cope with the debt crisis, before rising interest rates made an alarming situation even worse. Countries like Pakistan are also facing colossal costs from widespread devastation caused by the climate emergency. We urgently need mechanisms to quickly cancel debts for countries in need, especially high interest loans from private lenders.”
Bhumika Muchhala, Senior Advisor on Global Economic Governance, Third World Network, said:
“While the US Federal Reserve has repeatedly raised its interest rate in response to the global inflation spike, there is little to no regard of the adverse spillovers imposed on developing countries across the world. These findings are an urgent call for a multilateral debt restructuring mechanism where all creditors – private, government and multilateral – participate, as well as a rethink of exchange rate liberalization and domestic monetary tightening as a strategy to secure market confidence in developing countries.”
Of the 27 lower income governments with public information available on their foreign currency bonds, Debt Justice finds that nine have yields over 20%: El Salvador, Ethiopia, Ghana, Maldives, Pakistan, Sri Lanka, Tunisia, Ukraine and Zambia. A further ten have yields between 10% and 20%: Angola, Cameroon, Egypt, Honduras, Kenya, Mongolia, Nigeria, Papua New Guinea, Rwanda and Tajikistan.
The yield is a measure of what the interest rate would be on new loans from the private sector, though yields of over 10% suggest borrowing will not be possible.
As well as the rise in borrowing costs, the analysis finds that for the 27 countries covered in the study, the dollar has increased in value by an average of 14% compared to local currencies. Because external debts tend to be owed in foreign currencies, especially the dollar, this immediately increases the relative size of debt payments in local currencies.
The lack of an effective debt relief scheme is forcing the world’s poorest countries to cut public spending to keep up payments to their creditors, despite the need to counter the impact of spiralling food and energy prices. Currency depreciations also add to the costs of importing food and energy supplies further undermining public revenues.
http://debtjustice.org.uk/press-release/300orgs http://gcap.global/news/gcap-joins-300-organisations-in-calling-for-the-international-monetary-fund-imf-the-world-bank-and-other-global-lenders-to-cancelthedebt-now/ http://www.escr-net.org/news/2022/did-imf-annuals-2022-deliver-providing-sustainable-solutions-ongoing-debt-crises http://debtjustice.org.uk/press-release/lower-income-country-borrowing-costs-rise-at-three-times-the-rate-of-the-us http://www.ipsnews.net/2022/10/while-developing-nations-hang-on-to-a-cliffs-edge-g20-imf-officials-repeat-empty-words-at-their-annual-meetings/ http://www.eurodad.org/debt_justice http://bit.ly/3emq0pw
http://www.savethechildren.net/news/one-three-world-s-poorest-countries-pay-more-debt-repayments-education-save-children http://www.reuters.com/article/imf-worldbank-reserves/imf-should-issue-new-reserves-to-help-countries-tackle-overlapping-crises-groups-idUSL1N3162Q7 http://bit.ly/3CieFyE http://unctad.org/press-material/unctad-warns-policy-induced-global-recession-inadequate-financial-support-leaves http://policydialogue.org/publications/working-papers/end-austerity-a-global-report-on-budget-cuts-and-harmful-social-reforms-in-2022-25/
Tackling the debt, climate and nature crises together. (International Institute for Environment & Development)
In the wake of the COVID-19 pandemic, urgent debt relief is needed. This is an opportunity to change how debt relief is addressed and delivered. IIED is working to have creditors and receiving countries take up climate and nature programme swaps – a system that makes it possible to tackle the debt, climate change and nature emergencies together, in order to reduce poverty and better ensure an inclusive and sustainable post-COVID recovery.
http://www.iied.org/tackling-debt-climate-nature-crises-together http://www.iied.org/debt-for-climate-swaps-innovative-financial-instruments-for-public-debt-management http://www.iied.org/21001iied
Forging Social Contracts in a time of Discontent
by Kevin Casas-Zamora
Half of democratic governments around the world are in decline, undermined by problems ranging from restrictions on freedom of expression to distrust in the legitimacy of elections, according to a new report by the intergovernmental organization’, the Stockholm-based International Institute for Democracy and Electoral Assistance (International IDEA).
This decline comes as elected leaders face unprecedented challenges from Russia’s war in Ukraine, cost of living crises, a looming global recession and climate change.
The number of backsliding countries—those with the most severe democractic erosion—is at its peak and includes the established democracy of the United States, which still faces problems of political polarization, institutional disfunction, and threats to civil liberties. Globally, the number of countries moving toward authoritarianism is more than double the number moving toward democracy.
There are troubling patterns even in countries performing at middle to high levels of democratic standards. Progress has stalled across the Global State of Democracy Indices (GSoD Indices) over the last five years. In many cases, democratic performances are no better than they were in 1990.
Global democracy’s decline includes undermining of credible elections results, restrictions on online freedoms and rights, youth disillusionment with political parties as well as out-of-touch leaders, intractable corruption, and the rise of extreme right parties that has polarized politics.
The GSoD indices show that authoritarian regimes have deepened their repression, with 2021 being the worst year on record. More than two-thirds of the world’s population now live in backsliding democracies or authoritarian and hybrid regimes.
Still, there are signs of progress. People are coming together in innovative ways to renegotiate terms of social contracts, pushing their governments to meet 21st century demands, from creating community-based childcare in Asia to reproductive freedoms in Latin America.
People are successfully organizing themselves outside traditional party structures, especially youth, from climate protests to Indigenous rights. New constitutions and laws are aiming to lift the voices of marginalised groups. In the streets of Iran, young protesters brave their lives to press for basic freedoms.
These are among the findings of the “The Global State of Democracy Report 2022 – Forging Social Contracts in a Time of Discontent” - published by International IDEA.
“The world faces a multitude of crises, from the cost of living to risks of nuclear confrontation and the acceleration of the climate crisis. At the same time, we see global democracy in decline. It is a toxic mix”, said International IDEA Secretary-General Kevin Casas-Zamora. “Never has there been such an urgency for democracies to respond, to show their citizens that they can forge new, innovative social contracts that bind people together rather than divide them.”
Among the key findings:
As of the end 2021, half of the 173 countries assessed by International IDEA are experiencing declines in at least one sub-attribute of democracy.
In Europe, almost half of all democracies—a total of 17 countries-- have suffered erosion in the last five years. These declines affect 46 per cent of the high-performing democracies.
Authoritarianism continues to deepen. Almost half of all authoritarian regimes have worsened. Afghanistan, Belarus, Cambodia, Comoros and Nicaragua have experienced a broad decline.
Democracy does not appear to be evolving in a way that reflects quickly changing needs and priorities. There is little improvement, even in democracies that are performing at mid-range or high levels.
The Report recommends a series of policy actions to bolster global democratic renewal by embracing more equitable and sustainable social contracts, reforming existing political institutions, and shoring up defenses against democratic backsliding and authoritarianism.
* Access the Global State of Democracy Report 2022 below.
http://www.idea.int/news-media/news/global-democracy-weakens-2022 http://idea.int/democracytracker/gsod-report-2022 http://www.idea.int/democracytracker/publications
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