The growing debt burden on the world’s poorest nations is stalling progress toward critical sustainable development goals (SDGs), according to Achim Steiner, Administrator of the United Nations Development Programme (UNDP). Speaking at the Hamburg Sustainability Conference in Germany on October 7, 2024, Steiner highlighted that countries are facing immense financial pressures, forcing them to prioritize debt servicing over essential investments in areas such as healthcare, education, clean energy, and biodiversity.

Struggles in Reaching Sustainable Development Goals (SDGs)

The SDGs, a set of 17 ambitious global targets established by the United Nations in 2015, aim to eradicate poverty, promote gender equality, ensure access to clean water and education, and foster sustainable economic growth by 2030. However, for many low-income countries, debt repayment obligations are impeding their ability to make the necessary investments toward achieving these targets.

Steiner emphasized that many countries, especially those classified as Least Developed Countries (LDCs), have been “priced out” of international financial markets. This is largely due to a combination of high borrowing costs triggered by the global rise in interest rates, limited access to affordable credit, and fiscal constraints exacerbated by external shocks such as the COVID-19 pandemic and climate-related disasters.

“For many LDCs, they have literally been priced out of financial markets. They cannot borrow any more money,” Steiner stated during the conference. He further warned that the financial squeeze has left these nations with no choice but to curtail vital spending on social and development programs to avoid defaulting on their debt. “It’s a very extreme situation.”

The Debt Crisis: A Global Concern

The situation Steiner described is not limited to a handful of countries. Across the world, developing nations are grappling with unsustainable levels of debt. Countries like Ghana, Sri Lanka, and Zambia have already defaulted on their debt obligations in recent years, while others, such as Pakistan and Argentina, are teetering on the brink of default. Rising global interest rates have worsened the debt crises, as borrowing costs soar and the ability to service debts becomes increasingly challenging for these nations.

Steiner noted that the global debt crisis disproportionately affects the poorest nations, and without immediate intervention, achieving the SDGs would become an even more distant dream. The ongoing crisis has also underscored the need for reforms in the international financial architecture, particularly for developing countries that face barriers to accessing capital markets on favorable terms.

“We have to tackle this issue of our international financial architecture and our international financial system,” Steiner urged. “If not, we are going to fall apart in our endeavor to find answers that our citizens are expecting us to find.”

The Role of Private Sector in Addressing the Funding Gap

The financial gap to meet the SDGs is daunting. World Bank President Ajay Banga, speaking alongside Steiner at the conference, stated that the combined efforts of official and multilateral lenders would not be enough to close the funding gap. According to Banga, an estimated $4 trillion per year is required to achieve the SDGs globally, and current funding from traditional public sources is falling short.

“That gap is going to need the private sector,” Banga said during a panel discussion. He suggested that mobilizing private capital would be critical to filling the void left by insufficient public sector financing.

One of the key strategies highlighted by Banga is the use of public money to de-risk private investments. By leveraging multilateral balance sheets and providing risk mitigation instruments such as guarantees and insurance, international financial institutions can attract private sector participation in crucial development projects, particularly in sectors like renewable energy in developing countries.

“We’ve already doubled where we were a year ago. There is more to come,” Banga noted, referring to the World Bank’s efforts to scale up guarantees for private investors. In July 2024, the World Bank launched a new one-stop-shop loan and investment guarantee platform aimed at tripling the provision of guarantees and risk insurance to $20 billion per year.

Reforming International Financial Systems

At the Hamburg conference, leaders emphasized the need for substantial reforms to the global financial system to make it more accessible and equitable for developing countries. Current financing models often leave low-income nations at a disadvantage, especially when it comes to securing long-term, low-interest loans.

German Chancellor Olaf Scholz, who also delivered a keynote speech at the event, stressed the importance of public-private partnerships (PPPs) in achieving the SDGs. Scholz noted that standardizing financing mechanisms and streamlining the process of establishing PPPs would enable faster mobilization of resources for development projects.

“Without the expertise and investment of the private sector, the sustainable development goals cannot be reached,” Scholz remarked. He called for increased collaboration between governments, international financial institutions, and the private sector to bridge the funding gap.

The Climate Finance Challenge

In addition to the debt crisis, another major obstacle to achieving the SDGs is the climate finance gap. Steiner pointed out that trillions of dollars are needed annually to meet global climate goals, including those outlined in the Paris Agreement. Developing countries, particularly those most vulnerable to the impacts of climate change, are struggling to secure the necessary funds to transition to renewable energy, build climate-resilient infrastructure, and mitigate the effects of environmental degradation.

Steiner underscored the urgency of scaling up climate financing to prevent further setbacks in development. The UNDP, along with other international organizations, has been advocating for a significant increase in climate-related investments, particularly for adaptation and mitigation projects in the Global South.

The World Bank has also been expanding its portfolio of climate-related projects, with a focus on leveraging private capital. President Banga highlighted that the bank has recently increased its insurance offerings for investors looking to finance renewable energy projects in developing countries, a move designed to reduce the financial risks associated with such investments.

A Call for Global Solidarity

Steiner’s remarks at the Hamburg Sustainability Conference come at a time when global leaders are grappling with overlapping crises—from rising debt levels and inflation to geopolitical tensions and the climate emergency. The UNDP chief emphasized that without a concerted effort from the international community, the most vulnerable countries will continue to bear the brunt of these challenges, jeopardizing their ability to meet the SDGs by the 2030 deadline.

“There is no time to waste,” Steiner concluded. “Global solidarity is needed now more than ever. We must act collectively to ensure that no country is left behind in our pursuit of a more just, equitable, and sustainable world.”

As the world heads toward the United Nations Climate Change Conference (COP29) in Dubai later this year, the issues of debt relief, climate finance, and international cooperation will undoubtedly take center stage in discussions. For many of the world’s poorest nations, the outcome of these talks could determine whether they stay on track to meet their development goals—or fall further behind.

photo source: Google

By: Montel Kamau

Serrari Financial Analyst

8th October, 2024