LONDON (Reuters) – The United Nations Development Program (UNDP) on Tuesday joined the chorus of institutions and charities warning that a severe debt crisis is gripping the poorest parts of the world.
In a new report, the UNDP estimated that 54 countries, representing more than half of the world’s poorest people, now need immediate debt relief to stave off further poverty and give them a chance to tackle climate change.
“A serious debt crisis is unfolding in developing economies, and the likelihood of a worsening outlook is high,” said the report released on Tuesday.
The warning comes as the International Monetary Fund and World Bank hold meetings in Washington this week amid growing concerns about a global recession and a series of debt crises from Sri Lanka and Pakistan to Chad, Ethiopia and Zambia.
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UNDP administrator Achim Steiner has urged a range of measures, including debt cancellation, offering broader relief to a larger number of countries and even adding special clauses to bond contracts to provide breathing space during crises.
“It is urgent that we step up and find ways to address these problems before they become at least less manageable and perhaps unmanageable,” he told reporters.
Without effective debt restructuring, poverty will increase and desperately needed investments in climate adaptation and mitigation will not be realized.
The UNDP report also called for a recalibration of the G20-led Common Framework, the blueprint designed to help countries in financial trouble from the COVID-19 pandemic to restructure debt. Only Chad, Ethiopia and Zambia have used it so far.
His proposal was to expand the eligibility of the Common Framework so that all highly indebted countries could use it instead of the 70 or so poorest countries, with any debt payments automatically suspended in the process.
“Both will act as an incentive for creditors to participate and maintain a reasonable timetable, and could also remove some of the doubt caused by debtor country rating fears,” the report said.
It also recommended that creditors should have a legal obligation to cooperate “in good faith” in Common Framework restructurings and that countries could offer to take green measures to encourage creditors to repay their debt.
“It makes a lot of sense,” the report said. “These countries are not only the ones that have contributed the least to climate change, they also bear the highest cost of it.”
(Reporting by Marc Jones; Editing by Raissa Kasolowsky)
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