A new report on global economic governance says low-income countries are faced with the worst debt crisis they have ever encountered.
Currently, debt service eats up over 50 per cent of public revenue in Kenya; over 60 per cent in Morocco and over 70 per cent in Bangladesh. Meanwhile, Zambia defaulted in 2020 and has suspended debt service to most of its non-multilateral external creditors.
Released on May 23, the report exposes major shortcomings in global economic governance and the resulting impact on countries in the global south. It also makes a range of recommendations for reform.
‘Financing Development? An assessment of domestic resource mobilisation, illicit financial flows and debt management’ brings together an in-depth analysis of nine countries—Bangladesh, Ecuador, Grenada, Kenya, Morocco, Nepal, Peru, the Philippines and Zambia —as well as the global level structures impacting debt sustainability and illicit financial flows.
All of the focus countries, which range from least developed to middle-income economies, have been profoundly disadvantaged by costly debt crises and large-scale illicit financial flows.
The failure of bodies like the G20, OECD and IMF to tackle these issues has meant that many have not been able to adequately respond to climate extreme events or make much-needed progress towards the Sustainable Development Goals (SDGs).
Tove Maria Ryding, Tax Coordinator at the European Network on Debt and Development (Eurodad) and one of the authors of the report said: “This report shows that the availability of public resources for services like health and education at the national levels is being eroded by high costs for sovereign debt payments and by large-scale illicit financial flows”.
“The fact is that governments are finding it increasingly difficult to mobilise the necessary financing to fulfill the sustainable development goals, and deliver their human rights and environmental objectives. This has clear, severe and direct impacts on the livelihoods and rights of people all over the world.
“These challenges require global solutions, and must be addressed through transparent and inclusive intergovernmental processes where all governments can participate on an equal footing.
“The upcoming 4th UN Financing for Development Summit, as well as the ongoing UN Tax Convention negotiations, provide crucial opportunities for governments to take urgent action,” Ryding pointed out.
Key findings from the report include:
Meanwhile, the findings also clearly illustrate the point that there has—until now—been no truly global process where all countries participate on an equal footing in the development of global tax standards.
For example, among the focus countries, two out of three of the least developed countries (Nepal and Bangladesh) are not a part of either the OECD’s Global Forum nor Inclusive Framework.
The recommendations outlined in the report include the immediate and unconditional cancellation of all unsustainable and illegitimate debts, to all countries in need, by all creditors, and the creation of a permanent multilateral sovereign debt resolution under the auspices of the UN.
It also urges all governments to join the current process to negotiate and adopt a UN Convention on Tax as a global framework for international tax cooperation.