President Paul Kagame says that a growing debt burden on poor countries in the wake of the COVID-19 is likely to widen further the gap between rich and poor countries if nothing is done to ease the pressure on development countries.
President Paul Kagame made the remarks on Monday during the high-level International Debt architecture and Liquidity summit convened by Prime Minister Justin Trudeau of Canada and Prime Minister Andrew Holness of Jamaica, together with United Nations Secretary-General António Guterres to discuss the state of global debt.
The Head of State said that modernising the international debt architecture should not be seen as merely a Covid-19 emergency measure but rather as a “long-overdue discussion that goes to the heart of the inequalities that continue to bedevil our world.”
“Recovery from the Covid-19 pandemic depends on adequate fiscal space and liquidity. However, there is a sharp dividing line in today’s world,” President Kagame said.
He said that while some countries can finance their own recovery through quantitative easing, the rest must borrow from private or public creditors, much as individuals do.
“Without corrective action, this divergence will entrench a profoundly unequal global order, in which the poor have no chance of ever catching up with the prosperous,” he added.
President Kagame said that he welcomes the initiative by Prime Minister Trudeau, Prime Minister Holness and Secretary-General Guterres to ensure that developing countries are not forgotten in the global recovery efforts.
The Head of State shared three important points which he thinks can ensure an inclusive recovery process, pointing out that it is critically important to extend the G20 Debt Service Suspension Initiative for the foreseeable future.
“A new issuance of Special Drawing Rights would enhance liquidity. But there needs to be a system of accountability for how SDRs are used, as well as a method of allocating them according to need rather than quota.
“Third, debt relief negotiations should be conducted with the welfare of citizens inmind, and with a long-term view of development objectives, including the SDGs,” President Kagame said.
He said that finding innovative solutions to these challenges should rightly be a central preoccupation of the international community in the immediate future.
The UN Secretary the world is at a turning point in the COVID-19 crisis, which has so far claimed over 2.7 million lives. Guterres said that as a result of the pandemic, more than 120 million people have fallen into extreme poverty.
“We are in the worst recession since the Great Depression. Richer countries have benefited from an unprecedented $16 trillion of emergency support measures, preventing a downward spiral, and setting the stage for recovery,”
“But many developing countries cannot invest in recovery and resilience, because of financing constraints. The least developed countries have spent 580 times less in per capita terms on their COVID-19 response than advanced economies,” the UN SG said.
He pointed out that this division is starkly reflected in global access to vaccines where many developed countries are on the brink of mass vaccination while developing countries have to wait for months if not years.
“We face the spectre of a divided world and a lost decade for development. We are on the verge of a debt crisis,” Guterres said, pointing out that 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 least-developed and low-income countries,”
“They face a painfully slow recovery that will put the 2030 Agenda for Sustainable Development and the Paris Agreement completely out of reach,” the UN head said
He said developing countries need access to additional liquidity, which the global community must provide urgently, in order for these countries to be able to respond to the pandemic, and to invest in recovery.
The Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva said that the global economic outlook is improving—thanks to incredible efforts on vaccines, and unprecedented actions by governments and the international community.
She however said that prospects for recovery are diverging dangerously, with emerging and developing countries remaining at risk of languishing with weaker growth.
“Relative to pre-crisis projections and excluding China, this group is projected by 2022 to have cumulative per capita income losses as high as 20 percent versus 11 percent in advanced economies,”
“We need a comprehensive approach to support vulnerable countries and people. It must include domestic measures to improve revenue collection, spending efficiency, and the business environment, as well as substantial international support, including grants and concessional lending,” Georgieva said.
She said the IMF will do its part through concessional lending, pointing out that so far, the institution has advanced on the consideration of a new SDR allocation of US$650 billion to address the long-term global need for reserve assets.
She said in June she will present a new SDR allocation proposal which will include measures to enhance transparency and accountability while supporting global recovery, by providing a substantial direct liquidity boost for all IMF members without adding to debt burdens.