UNDP: Multilateral financial system must address debt restructuring at speed & scale

The United Nations Development Program (UNDP) is advocating for urgent action to address debt restructuring to mitigate poverty on a global scale. In a recent interview with CNBC Africa, George Gray Molina, the UNDP's Chief Economist, emphasized the need for a Debt-Poverty Pause as a temporary measure until a more effective multilateral system for debt restructuring can be established. Molina highlighted the challenges faced by low-income and middle-income countries, with only a few economies receiving debt treatment and none benefiting from a debt write-off in recent years. According to Molina, 52 economies are currently vulnerable to debt accumulation, leading to an increase in debt servicing costs that are obstructing essential expenditures in areas like health, education, and social protection. This trend is contributing to a rise in poverty globally, with an estimated 165 million people falling into poverty over the past few years. The proposed solution by the UNDP involves linking a debt pause, which would temporarily halt debt service payments, to a poverty pause. Molina pointed out that previous initiatives like the Debt Service Suspension Initiative (DSSI) introduced by the G20 provided some relief but were prematurely interrupted. To address the current challenges effectively, Molina stressed the importance of creating a multilateral debt architecture that incorporates poverty alleviation measures. Molina acknowledged that implementing such changes would require time and effort but outlined short-term, medium-term, and long-term strategies. In the long term, he emphasized the need to address poverty in low-income economies, highlighting the lack of fiscal resources as a significant barrier. On a short-term basis, Molina proposed the reinstatement of a debt pause to provide countries with breathing room and the opportunity to implement targeted mitigation programs for vulnerable households. The recent France-Africa summit also discussed issues related to debt restructuring, focusing on state contingent debt and pause clauses for future financing. However, Molina stressed the importance of addressing existing debt burdens in addition to exploring new financial mechanisms. Highlighting the human cost of inaction, Molina underscored the World of Debt report's findings, which revealed a significant increase in poverty levels, surpassing the 1 billion mark due to the cumulative impact of economic shocks. He warned that the status quo could lead to a lost decade in progress and called for immediate policy action to prevent further deterioration. In terms of UNDP's role, Molina highlighted the organization's efforts in providing support to countries facing fiscal and financial constraints. Through programs focused on strengthening digital infrastructure and identifying financing opportunities, the UNDP aims to target vulnerable populations and small enterprises in need of assistance. While addressing concerns about the Debt-Poverty Pause potentially postponing the issue instead of advocating for debt forgiveness, Molina clarified that the UNDP supports debt restructuring initiatives. However, he emphasized the need for a more robust and equitable debt restructuring framework to ensure fair negotiations between creditors and debtor countries. He also stressed the critical importance of immediate action on social protection mechanisms to mitigate the impact of ongoing crises. As the global community grapples with the intertwined challenges of debt restructuring and poverty alleviation, the UNDP's call for a comprehensive and coordinated approach underscores the urgency of addressing these issues to prevent further hardship and inequality.