G20 Summit in India opportunity to act on reforming global financial system amid crushing debt crisis: UN chief Guterres

UN Secretary-General Antonio Guterres has said that the G20 Summit to be hosted under India's Presidency provides an opportunity to take action on debt relief and reform the global financial system, as he voiced concern over the "crushing debt crisis" in the world.

Speaking at the launch of a UN report 'A World of Debt' here on Wednesday, Guterres said, "Some 3.3 billion people – almost half of humanity – live in countries that spend more on debt interest payments than on education or health."

"Half our world is sinking into a development disaster, fuelled by a crushing debt crisis," he said.

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Guterres said that because most of these unsustainable debts are concentrated in poor countries, they are not judged to pose a systemic risk to the global financial system.

"This is a mirage," he warned, adding that 3.3 billion people is more than systemic risk.

"It is a systemic failure. Markets may seem not (to) be suffering – yet. But people are. Some of the poorest countries in the world are being forced into a choice between servicing their debt or serving their people," the secretary-general said.

Noting that deep reforms to the global financial system will not occur overnight, Guterres said that many steps can be taken now.

"Our proposals include an effective debt workout mechanism that supports payment suspensions, longer lending terms, and lower rates, including for vulnerable middle-income countries," he said.

Guterres said that governments can agree to scale up development and climate finance by increasing the capital base and changing the business model of Multilateral Development Banks.

"They can enable much stronger coordination between the banks, to transform their approach to risk without losing their triple-A credit rating, so that they can massively leverage private finance at an affordable cost to developing countries," he added.

"The Bridgetown Agenda led by Prime Minister Mia Mottley of Barbados and the recent summit hosted by President Macron of France generated other important proposals. The upcoming G20 Summit is an opportunity to take these ideas forward," Guterres said.

India assumed the year-long presidency of the G20 on December 1, 2022, and is hosting over 200 meetings and related events in cities across the country.

These events will culminate in a Global Leaders' Summit in New Delhi on September 9-10, later this year, to be attended by over 40 Heads of State, Heads of Government and international organisations.

A G20 Leaders' Declaration is expected to be adopted at the conclusion of the New Delhi Summit, stating "Leaders' commitment towards the priorities discussed and agreed upon during the respective ministerial and working group meetings."

Global public debt reached an all-time high of $92 trillion in 2022, and this five-fold surge in public debt levels since 2000 demands immediate action to tackle the escalating crisis affecting developing countries in particular.

Guterres underlined that, on average, African countries pay four times more for borrowing than the US and eight times more than the wealthiest European economies. "A total of 52 countries – almost 40 per cent of the developing world – are in serious debt trouble," he said.

"It is one result of the inequality built into our outdated global financial system, which reflects the colonial power dynamics of the era when it was created," he added.

The UN chief said that the system had not fulfilled its mandate as a safety net to help all countries manage the present cascade of unforeseen shocks – the pandemic, the devastating impact of the climate crisis, and the Russian invasion of Ukraine.

While noting that debt is an essential financial tool that can drive development and enable governments to protect and invest in their people, Guterres said that when countries are forced to borrow for economic survival, debt becomes a trap that generates more debt.

Guterres said some of the poorest countries in the world are being forced into a choice between servicing their debt or serving their people.

"They have virtually no fiscal space for essential investments in the Sustainable Development Goals (SDGs) or the transition to renewable energy. Levels of public debt are staggering – and surging," he said, adding that as global public debt reached a record USD 92 trillion dollars in 2022, developing countries shoulder a disproportionate amount.

In a press release, the UN urgently called for a comprehensive reform of the international financial architecture, including the debt architecture, to foster a more inclusive system that empowers developing countries to participate in the global financial system's governance actively.

The UN asserted that addressing the high cost of debt and the mounting risk of debt distress is of utmost importance.

It added that establishing a debt workout mechanism is crucial to expedite progress under the G20 Common Framework for Debt Treatment. This has faced challenges due to creditor coordination issues and the absence of automatic debt service suspension clauses.

Developing countries, especially those with high debt burdens, require increased liquidity during times of crisis, the UN said, adding that a liquidity crisis risks turning into a debt crisis otherwise.

"This can be achieved by expanding contingency finance. The global safety net must work. Measures such as enhancing the use of Special Drawing Rights, temporarily suspending IMF surcharges, and broadening access to emergency financing through increased quotas must be pursued," the press release said.