Innovative Debt Instruments, Partnerships Needed to Unleash Sustainable Development in Africa, Deputy Secretary-General Tells Conference

(Delayed for technical reasons.)

Following are UN Deputy Secretary‑General Amina Mohammed’s remarks, as prepared for delivery, to the inaugural session of the conference on “Sustainable Development, Sustainable Debt”, co‑organized by Senegal and the International Monetary Fund (IMF), in Dakar today:

It is a great pleasure to be in Dakar, Senegal, to speak on an issue that is critical for the achievement of the 2030 Agenda [for Sustainable Development].  I am grateful to our hosts, the President of the Republic of Senegal and the new Managing Director of the International Monetary Fund, for bringing us together to discuss how to progress in this area.  I applaud their leadership and would also like to take this opportunity to welcome my sister Kristalina Georgieva as the head of the IMF and her focus on climate and gender related issues.

Sustainable development and sustainable debt are interconnected.  This recognition allows policymakers to address the issue more effectively — especially in the context of the economic policies on the African continent.

Africa is a land of opportunity with great potential to benefit from its large and youthful population, growing markets and abundant resources to achieve the 2030 Agenda and [the African Union] Agenda 2063.  Many African countries are among the world’s fastest‑growing economies.  But the challenges of achieving the Sustainable Development Goals (SDGs) are daunting.  Investment needs in key infrastructure and social services are massive.  Reducing inequalities and addressing climate change are critical, as is harnessing the capacities of young people, empowering women and investing in peaceful societies and building resilience.

The 2030 Agenda envisages new and additional financial flows into countries to allow rapid expansion of gross domestic product (GDP).  The assumption is the larger the GDP, the larger the tax base will be, and, in the long run, countries will be able to rely more on domestic resources for public investments.  Yet, financial flows into developing countries, especially those in this continent, are far short of what is required to reach the targets of the SDGs.

According to the estimates of the International Monetary Fund, SDG investments in education, health, roads, electricity and water and sanitation alone require low‑income countries to spend, on average, an additional 15 percentage points of GDP by 2030.  In Africa, estimates of SDG financing needs range from $616 to $638 billion annually.

Conventional official development assistance (ODA) is not filling these gaps.  In fact, ODA to developing countries has shrunk at an unprecedented rate in recent years.  Even when countries do receive ODA, it continues to be earmarked and tied.  As a result, with little or no FDI [foreign direct investment], countries in the developing world are left with little or no choice but to go for loan financing or other debt instruments to fund development projects, which they need to reach the SDGs.  But that has led to a sharp accumulation of debt.

Average public debt in Africa is now close to 60 per cent of GDP, up from 41 per cent in 2013.  A growing share of public expenditure is used to service debt competing with scarce resources that would otherwise be invested in the SDGs.  Developing countries today spend an average of 12 per cent of revenue on external debt payments — double what they did in 2010.  In Africa, with a large and growing young population, lack of investment in education and health can have serious negative implications for long‑term growth and SDG achievement.

Changes in the composition of debt further exacerbate the challenge.  Commercial financing and lending by non‑traditional creditors, together with access to international financial markets, have provided welcome additional funding.  But they are more costly and more exposed to global financial market volatility.  In addition, external debt with variable interest is also growing rapidly.  In least developed countries, floating rate debt represents a third of total external debt — greatly increasing exposure to economic risk.

As the scale of these complex challenges is becoming clearer, the international community will need to strengthen its engagement.  Lessons from the past, such as the challenges countries faced from the debt crisis in the 1990s, will prove invaluable if used to inform new strategies.  We need to ensure that history does not repeat itself.  We need strong political will from African countries and the commitment of international partners to address the structural issues that constrain sustainable development financing in Africa.  And we need to encourage innovative debt instruments and mechanisms.

Today’s conference is responding to a new‑found urgency in overcoming these challenges.  Our economic solutions are running way behind present challenges, such as global social unrest, inequalities, conflict and climate change.  Our discussions on debt sustainability should not lose sight of investing in sustainable development.  I would like to offer four points to contribute to the deliberations.

First, the narrative on debt has to change.  We have to recognize that debt is not inherently bad.  What matters is how the money is spent and the country context.  Several African countries have borrowed to invest in critical infrastructure investment like transport and energy, while others have spent on development‑related current expenditures such as health and education, which has improved human development outcomes.

Many African countries are at the early stages of their development where their investment requirements are very high, especially to meet the needs of sustainable development.  At this stage of development, debt will rise and debt ratios will deteriorate.

What is important in Africa is to establish credible and sound macroeconomic policies, good governance and strong regulatory frameworks and institutions to implement inclusive social impact investments while creating fiscal space to service the debt.

Second, governance and strong institutions will be needed to ensure the capacity of Governments to partner with international financial institutions and others to implement the Addis Ababa Action [Agenda] agreement.

Third, we need to examine the potentials of debt swaps and debt restructuring where the potential for aligning and/or linking the SDGs will have multiplier effects in the society — for example, [the] current proposal in SIDS [small island developing States] for climate‑related debt swaps.

Fourth, the impact of debt financing on future growth and revenue mobilization also underlines the integrated nature of financing and sustainable development.  We are encouraging countries to adopt integrated national financing frameworks, first introduced in the Addis Ababa Action Agenda, which can help align all financing policies and approaches — from tax to investment, aid and debt — with national priorities.

We need to move forward and support countries to better manage their debts and FDI, without which the implications will include missed opportunities for youth, climate action, women empowerment, conflict resolution and the nexus between the SDGs, peace and security.  I trust that today’s conference can generate further momentum to move from worrying about this crisis to tackling it head on — in the spirit of the Decade of Action for SDG implementation.

Thank you.