Governments meeting this week at a United Nations forum are considering new ways of assessing public debt sustainability and scaling up sustainable finance against a backdrop of the need to increase investments in the Sustainable Development Goals (SDGs) and stronger climate action, and at a time when public coffers remain hemmed in by recent multiple crises.
Dealing with the COVID-19 pandemic, fallout from the war in Ukraine and other global turbulences over the last several years have left many governments in Asia and the Pacific short on public funds to meet their commitments on the 2030 Agenda for Sustainable Development, which is at its midway point this year.
Therefore, identifying long-term financing solutions to get the Goals back on track and incorporating SDG investment requirements while assessing debt risks will be the main discussion point at the fourth session of the Committee on Macroeconomic Policy, Poverty Reduction and Financing for Development.
“The imperative for the significant needed additional investments in SDGs is colored by an increasing number of countries experiencing rising debt distress. In this environment, a key policy challenge is how to accelerate investments in SDGs while maintaining public debt sustainability in the long term,” said Armida Salsiah Alisjahbana, Under-Secretary-General of the United Nations and Executive Secretary of the Economic and Social Commission for Asia and the Pacific (ESCAP).
“In our new financing for development report, Sustainable Finance: Bridging the Gap in Asia and the Pacific, we lay out ten principles for action to close the gap in sustainable finance, and discuss in detail what governments, regulators and private finance entities can do to scale-up sustainable finance and how to increase its affordability and accessibility,” she added.
In his opening remarks, the State Minister of Finance of Sri Lanka, Shehan Semasinghe said: “As fiscal deficits have become common in both developed and developing countries, borrowing for budget finance needs to be looked at in a new light. Indeed, a new approach is necessary in particular to circumvent the present approach’s undue favoritism of short-term public debt sustainability at the expense of long-term economic and social development.”
According to the latest estimates of the G20 Independent Expert Group, the global annual incremental investments needed by developing countries (excluding China) for SDGs and climate action are around
$3 trillion, with about two-thirds expected to come from domestic resource mobilization and local finance. External financing commitments are expected to contribute the remaining $1 trillion, split evenly between both official development financing and private capital.
In response, the United Nations Secretary-General has launched the ‘SDG Stimulus to deliver the 2030 Agenda for Sustainable Development’, which aims to tackle the high cost of debt, scale up long-term financing for development and expand contingency financing to countries in need.
Competing pressures, however, have resulted in ballooning debt for many regional economies, with the public debt-to-GDP ratio reaching an 18-year high by 2021 and exposing an increasing number of countries to the risk of debt distress. ESCAP contends that a high level of public debt is not necessarily bad; what matters is how it is used. Its analysis recommends adopting a long-term approach to assess the risk of debt distress and shows that debt levels can indeed go down if the socio-economic and environmental gains of investments in SDGs are taken into account.
The Committee is scheduled to deliberate on debt sustainability and sustainable finance issues and hear from the experience of participants to increase understanding of the need for, and the policy implications of, a long-term public debt sustainability analysis that takes into consideration investments in the SDGs and climate action.
The Committee will also review the ten broad principles underpinning the actions to be undertaken by governments, regulators and private finance entities to scale up sustainable finance in Asia and the Pacific. These ten principles are guiding ideas that are in line with the Paris Agreement and the 2030 Agenda to support financing for the SDGs and climate action, rather than binding commitments by member States.
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