Distinguished delegates, ladies and gentlemen,
It is my pleasure to speak to you today at the International Finance Forum 2021 Annual Meeting.
For almost two years now, our world has experienced an unprecedented global health emergency and a subsequent devastating economic crisis. In addition to the pandemic, the Asia-Pacific region continues to face many natural disasters intensified by climate change.
These catastrophes have made us realize how vulnerable the region is to both economic and non-economic shocks.
In 2020, Asia-Pacific economies contracted by 0.6 per cent, the region’s worst economic performance in decades. Although the region is set to resume output growth of 6.7 per cent this year, the recovery is uneven across countries. At the same time, 89 million people in the region may have been pushed back into extreme poverty, according to ESCAP estimates.
The disproportionate impact on the poor and other vulnerable groups, as well as the uneven access to COVID-19 vaccines, have exacerbated already high and rising economic inequalities, both within and across countries.
In this context, to build a better future, the ESCAP Economic and Social Survey of Asia and the Pacific 2021 proposes illustrative policy packages that aim to provide universal access to social services, close the digital divide and strengthen climate and clean energy actions.
Our estimates show that such packages could help reduce the number of poor people in the region by almost 180 million, cut carbon emissions by about 30 per cent, and boost the potential output level by over 10 per cent in the long run.
However, given their high costs and shrinking government revenues, delivering such policy packages could undermine public debt sustainability in some developing countries in our region.
There is also a risk that financing flows are diverted away from development financing, which is needed to achieve the Sustainable Development Goals and meet nationally determined contributions under the Paris Agreement.
Despite the shrinking fiscal space and increasing public debt burdens, countries in Asia and the Pacific should avoid premature fiscal consolidation. This is because it may delay economic recovery in the short term and thus contribute to higher long-term debt ratios. Furthermore, in the long term, it will seriously hamper the possibility of achieving the SDGs.
Additional fiscal space may be created through a variety of government policy actions. These include several domestic measures which provide extra resources while managing some of the risks associated with accumulating further debt.
Some of these measures include curbing and reorienting non-developmental expenditures; carrying out taxation reforms towards direct progressive taxes and wealth and property taxes; improving the efficiency of public debt management; and using innovative bond instruments such as offshore public bonds.
Other promising approaches are green bonds and debt swaps for development, which are particularly valuable as they not only provide extra financing but also directly support achievement of the SDGs.
Ladies and gentlemen,
The United Nations Secretary-General has underlined the need for a debt strategy plan that would see a larger portion of international funding going towards developing countries. There are a number of elements to the proposal of the Secretary-General at the global level.
One is with regard to the recent issuance of $650 billion in Special Drawing Rights, or SDRs, by the International Monetary Fund. However, the problem here is that this support is largely going to countries that need them least, as they are distributed according to country quotas dominated by the developed world.
The Secretary-General has therefore called for a substantial re-allocation of unused SDRs to vulnerable countries that actually need them, including middle-income countries.
A second element to the proposal is for continued debt suspension and actual debt relief. There is a need for an extension and expansion of the G20’s Debt Service Suspension Initiative, or DSSI, into 2022.
Furthermore, DSSI should extend beyond low-income countries and official bilateral debts, as well as consider options to reduce the amount of debt stocks.
In this respect, the Common Framework for Debt treatment beyond the DSSI, announced by the G20 in October 2020, has considerable potential to ease the debt crisis because it allows for actual debt relief.
However, as it stands now, the initiative is not sufficient as it needs to include many affected countries who do not qualify as “low-income”, and hence, are ineligible for assistance.
To support the enactment of these proposals, developing countries in Asia and the Pacific should participate more actively in debt negotiations. In this context, there are proposals to set up a Sovereign Debt Forum for early engagement among diverse creditors, debtors and other stakeholders.
Existing mechanisms should be revisited, based on principles spelled out in the Addis Ababa Agenda of timely, orderly, effective, and fair resolutions; shared responsibilities; and restoring public debt sustainability to enhance the ability of countries to achieve the SDGs.
As open and inclusive platforms that are neither debtor nor creditor, regional economic commissions, such as ESCAP, could support discussions between member States to establish a regional Sovereign Debt Forum in support of global efforts.
Ladies and gentlemen,
The pandemic has provided an opportunity for us to reconsider our policies and strategies and align fiscal and financial resources with development efforts that will pay significant dividends in the future.
This is a time for us to come together, debate and converge on the key issues that matter.
Thank you for your attention. I wish you fruitful discussions during this important event.
