Soaring interest rates, ballooning debt burdens, wars and the consequences of global warming are leaving poor countries to drown in debt while making daily life for millions increasingly difficult and threatening the U.N.’s ambitious development goals.
The poorest nations are spending upwards of 12% of their revenue on interest payments alone – four times more than they spent only a decade ago – leaving 40% of the world's population to live under governments that dish out more money to the world’s bankers than they spend on health care or education, the U.N.'s Department of Economic and Social Affairs reported on Tuesday.
Nothing short of a “surge of financing” along with “reform” of the international financial system can rescue the U.N.’s 17 Sustainable Development Goals for 2030, says DESA's report, which puts the gap in development financing at an estimated US$4.2 trillion annually, up from $2.5 trillion before the COVID-19 pandemic.
Meanwhile, rising geopolitical tensions and wars, climate-induced disasters and a cost-of-living crisis have impacted billions of people across the global and set back progress on development targets.
Progress has 'stalled,' trust is 'falling'
With six years remaining to achieve the SDGs, the report says that some hard-won development gains are now backsliding, particularly in the poorest countries. According to U.N. estimates, if current trends continue, more than a half-billion people will continue to live in extreme poverty in 2030 and beyond.
The goals, unanimously adopted by the 193-nation U.N. General Assembly in 2015, are a set of interconnected global objectives aimed at addressing social, economic, and environmental challenges by the end of the decade. They cover issues such as poverty, hunger, health, education, gender equality, clean water, sustainable energy, climate action, biodiversity, and peace and justice.
The U.N. reported last June that a mere 15% of its SDGs were on track, with progress on nearly half of the goals labeled “weak and insufficient.”
“Decades of progress on poverty and hunger have stalled, and in some cases, been thrown into reverse,” U.N. Secretary-General António Guterres said this week. “Many developing economies are mired in debt, making progress on financing for development even more urgent.”
The human-created climate crisis is growing more dire, he said, “unleashing floods, hunger, and deadly droughts on some of the world’s most vulnerable communities.”
With inequalities growing ever wider, trust in institutions, and solidarity between developing and developed economies, “is low and falling,” the U.N. chief warned.
Reform international banking
The U.N., Guterres says, is calling for a SDG stimulus of US$500 billion per year of additional investments in sustainable development and climate action, as well as other steps that global leaders can immediately take.
These include changes to the lending practices of multilateral development banks with the goal of getting capital flowing back to developing countries.
“The banks should be empowered to raise more capital and stretch their balance sheets. Creditors should come together to preemptively extend loan periods to ease the burden of debt service payments before countries are forced into default,” Guterres said.
Debt burdens and rising borrowing costs are major contributors to the failure to make progress, according to the report.
The U.N. estimates that for the world’s least-developed countries, debt service will amount to US$40 billion annually between 2023 and 2025, up more than 50% from $26 billion in 2022. Stronger and more frequent climate-related disasters account for more than half of the debt upsurge in vulnerable countries.
While investment in SDG sectors grew steadily in the early 2000s, major sources of development funding are now slowing. For example, the report notes that domestic revenue growth has stalled since 2010, especially in the least-developed countries and other low-income countries, in part due to tax evasion and avoidance.
As companies and individuals dodge their obligations, corporate income tax rates are falling, with global average tax rates at 21.1% last year, down from 28.2% in 2000, due to tax competition and globalization.
Shortage of will, not money
There is “no shortage of money,” says Li Junhua, the U.N. undersecretary-general who heads DESA, but rather a shortage of “will and commitment.” Meanwhile, government subsidies for the production of fossil fuels – the root cause of the Earth’s climate crisis – are "in the trillions,” Li notes.
The high-income economies of the Organization for Economic Cooperation and Development are falling short on their commitments to climate finance and aid for developing countries, the report says.
While aid for developing countries increased to an all-time high of US$211 billion in 2022, up from $185.9 billion in 2021, much of the growth was attributed to aid to refugees living in donor countries. Only four nations met the U.N. aid target of 0.7% of gross national income in 2022.
International aid continued to grow last year, but most of the money went to immediate humanitarian assistance in Ukraine, Gaza and other crisis locations, rather than funding development.
The U.N.'s SDGs report echoes a World Bank study issued last year that found developing economies “sailing in dangerous waters” as soaring interest rates and tighter restrictions on borrowing left them without access to international bond markets. As a result, they face an “enduring setback” that will continue into the foreseeable future.
The U.N. report was issued in advance of Guterres’s Summit of the Future, which is to be held at U.N. headquarters in New York on the sidelines of the General Assembly's annual gathering in September. It is billed as a crucial opportunity to change course on climate, finance and other pressing global concerns.
The report concludes that the international financial system, established 80 years ago at the Bretton Woods Conference, no longer reflects the reality of today's geopolitical fault lines. The U.N. calls for replacing it with a system that meets the needs of a new century, one that is better equipped to respond to international crises and invest in SDGs while improving the global safety net for all nations.
