Speaking at a High-Level Meeting with Heads of State and Government on the International Debt Architecture and Liquidity on 29 March, Director-General Okonjo-Iweala said that by closing off export opportunities and lowering commodity prices, COVID-19 has worsened debt dynamics for many developing countries. She stressed that lowering trade barriers and improving access to trade finance could help alleviate debt pressures. “By delivering results at the WTO this year, governments can reinforce the predictable framework of rules that underpin global trade and enhance the ability of countries to earn the foreign exchange they need,” she said. Her remarks are below.
Secretary-General Guterres, Prime Minister Trudeau, Prime Minister Holness, Excellencies, colleagues, friends.
Debt sustainability assessments and trade negotiations have something in common. They sound arcane and technical. But they are fundamentally about people: about people’s living standards, opportunities and aspirations.
20 years ago, we thought that the Highly Indebted Poor Countries and Multilateral Debt Relief initiatives would solve the debt problem. And they did, for a good two decades. But multiple crises, from the financial, economic and food crises of 2008-2009, to localized impacts of climate change, epidemics and now COVID-19, have left many poor countries and even emerging markets in debt distress, with little fiscal space to cope or to finance the SDGs post-COVID.
So that is why we are here. We thank the Secretary General and Prime Ministers Trudeau and Holness for convening this meeting.
Trade and debt sustainability are closely linked.
By closing off export opportunities and lowering commodity prices, COVID-19 has worsened debt dynamics for many developing countries.
The collapse of export receipts from tourism has prompted balance of payments difficulties for many developing countries, especially island economies from the Caribbean to the Pacific and Indian Oceans.
At the onset of the crisis, trade finance dried up for several low-income countries, as foreign banks cut existing credit lines or refused to endorse letters of credit unless guaranteed by others. Without trade finance, countries can import basic necessities only by paying cash in advance.
Action on trade can help alleviate debt pressures.
Lowering trade barriers gives countries more opportunities to push down their debt-to-exports ratios. Addressing supply-side constraints and improving access to trade finance would help them take better advantage of market opportunities.
By delivering results at the WTO this year, including at our Twelfth Ministerial Conference, governments can reinforce the predictable framework of rules that underpin global trade, and enhance the ability of countries to earn the foreign exchange they need.
As we saw with the example of Nigeria in 2004-2005, action on debt and financing can help rekindle investment, growth and trade.
That is why the G20 Debt Service Suspension Initiative (DSSI) is so important, as is the Paris Club’s endorsement of the Common Framework.
Positive signs about a new SDR allocation and an accelerated IDA20 are also very welcome. This would provide fiscally constrained countries with resources to prevent imports from contracting — and to finance purchases of COVID-19 vaccines to redress the present inequality in access.
Nevertheless, fiscal sustainability for debt-distressed developing countries demands an enhanced DSSI: A debt service standstill till end 2022 and even mid-2023 by all bilateral official creditors. For countries with unsustainable debt burdens, this should be supplemented by haircuts to private creditors in the context of an IMF program. For countries with sustainable debt, the IMF and World Bank should provide financing even before official restructurings have finalized.
Ample concessional financing is needed to get these LICs and MICs durably on to their feet. In return, they must be ready to undertake the necessary structural reforms to make economic growth and financing sustainable. New fiscal space should be used to build back better: to green the economy and enhance sustainable development.
Twenty years ago, multilateral debt relief paved the way for faster growth and human development.
It is time to act again.
Lost decades are a policy choice. We can — we must — do better.
Source: WTO News blog