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There’s no getting around it. If governments are saddled with crippling debt, they can’t invest in the health, education, and future of their citizens.
But while everyone at the World Bank and IMF annual meetings will acknowledge there is a big debt problem, they don’t all agree about what exactly the problem is — let alone what to do about it.
Also in today’s edition: A victory lap for the World Bank’s evolution, a dose of cautious climate optimism from Barbados, and a call for taxing the superrich.
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Development advocates have waited a long time for a big breakthrough on the latest debt crisis threatening to derail global development progress. And they are still waiting. The debt burden facing lower-income countries is part of nearly every conversation about the future of development this week, and the numbers make it pretty clear why.
Low-income countries’ average annual spending on repaying their debts tripled between 2010 and 2020, from $20 billion to $60 billion.
Last year, emerging markets and low- and middle-income countries paid tens of billions of dollars more in debt repayments than they received in new lending and official development assistance.
The lowest-income and most climate-vulnerable countries now pay twice as much in debt repayments as they receive in climate finance.
Meanwhile, a number of key donors are tightening their belts in response to political and financial challenges at home — while keystone sources of development finance compete with each other in nail-biter funding replenishments.
So how to deal with the debt? Before they can solve that problem, the heavy hitters of the international financial system have to decide what problem they actually want to solve, as my colleague Adva Saldinger explains in this look inside the debt debate.
Are we looking at a short-term cash crunch, with lower-income countries in need of a financial bridge to help them get back on the road to growth? Or is this a full-blown debt crisis that demands restructuring and relief? And if it’s some combination of both, how should international financial institutions respond?
There are multiple frameworks and proposals on the table, but these have garnered mixed reviews like: “frustratingly slow,” and “a bandaid on a bullet wound.”
Few expect big breakthroughs this afternoon at the IMF’s Global Sovereign Debt Roundtable, but it’s another chance to sound the alarm.
Read: Debt levels are high, but will solutions come through? (Pro)
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There’s still time to save your spot for our flagship event Devex World, happening tomorrow in Washington, D.C., alongside the World Bank annual meetings. Expect a special session with World Bank Managing Director Axel van Trotsenburg on MDB reform, an interview with Howard Buffett, and more. Get your tickets now! Pro members can get a $400 discount.
Rebalance of powers
For a clearer picture of what this looks like to people in debt-burdened countries — and why international financial institutions such as the International Monetary Fund aren’t always seen as trusted debt problem solvers — read this opinion piece from Jack Odiwa at Christian Aid.
Opinion: A fair future for Africa starts with true and systemic IMF reform
Yellen ‘bout an evolution
U.S. Treasury Secretary Janet Yellen took a victory lap Tuesday, applauding the World Bank’s “evolution” reform efforts — which she just happened to play a key role in kickstarting.
“My call resonated widely because, despite a range of perspectives on what exactly was needed, there was overwhelming consensus on the need for change,” Yellen said in the World Bank atrium Tuesday.
She praised the bank’s progress in updating its mission to include the global public goods of a “livable planet,” shifting its institutional incentive structures, streamlining its operations, and boosting its financial lending capacity.
And with America’s commitment to multilateralism hanging on the upcoming elections, she added something between a rallying cry and a warning: “We cannot turn back.”
Service with a smile
World Bank officials are learning to talk less and listen more. That’s according to Zambia’s Minister of Finance and National Planning Situmbeko Musokotwane.
“In the past, when they were in our countries, they were intimidating,” Musokotwane said Tuesday. “They were like, ‘Take it or leave it.’ But that is changing, and I want to commend the leadership and the management for this change.”
He added that the new spirit of self-awareness has risen to the level of the bank’s institutional reforms.
“It was always very easy for the problems to be attributed to the recipient countries. ‘They are the problem.’ But there was no finger going back to the institution and saying, ‘What is wrong with us?’ Those questions are now being asked, and we welcome that,” he said.
Stay positive
Barbados Prime Minister Mia Mottley sees reason for (cautious) climate optimism.
“Has the needle moved? Yes, it has. Is it moving fast enough? No, it's not,” Mottley said Tuesday at the Brookings Institution. “But the fact that it is moving ought to give us hope, and give us the capacity to redouble our efforts to continue to close the gap.”
How does that translate into annual meetings terms? For Mottley, one answer is the IMF’s Resilience and Sustainability Trust, launched in 2022 to help climate-vulnerable countries access long-term financing.
Mottley said the world is listening to the recommendations of the Bridgetown Initiative — an effort that seeks to reshape the global financial system and bolster support for the nations most vulnerable to climate change.
ICYMI: Barbados' Bridgetown 3.0 recommends taxing emitters and the superrich
That’s rich
If you’ve been reading along this week, you know about the high-stakes struggle to raise $100 billion for the International Development Association, the World Bank’s fund for lowest-income countries.
But while aid advocates work around the clock to convince donors to put that funding on the table, the same amount leaves Africa each year in illicit financial flows — money which should be taxed and isn’t — the African Union’s Patrick Olomo shared Tuesday.
On top of that, the “superrich” avoid $220 billion a year in taxes, and there’s new momentum behind efforts to close those loopholes. An annual meetings side event Tuesday was standing room only — with observers spilling into the corridor and following on video screens.
A wealth tax has been moving up the agenda lately thanks to radical proposals from French economist Gabriel Zucman and has gathered support in many powerful economies, including Brazil, Germany, South Africa, and Spain. The African Union, among others, looks poised to push this agenda forward at the United Nations and at next month’s G20 summit.
+ Spotted: Barbados Prime Minister Mia Mottley stepping out for a slice of pepperoni at Andy’s Pizza in Western Market; World Bank spokesperson David Theis still smiling through his 24th World Bank annual meetings; multilateral big thinker (and friend of the Devex podcast) Mark Malloch-Brown holding down moderator duties alongside Yellen and World Bank President Ajay Banga; Development Reimagined CEO Hannah Ryder; Bretton Woods Project’s Luiz Vieira closing down the Knowledge Cafe.
In other news
Hungary, Slovakia, and Serbia pledged to step up efforts against irregular migration, urging stronger EU border protection and more funding. [Reuters]
Ukraine's population declined by a quarter since the start of Russia's full-scale invasion in 2022, according to the U.N. [Al Jazeera]
ABBA, Radiohead, and The Cure members join thousands protesting against AI for its “unlicensed use” of creative works. [AP]
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About the author
Michael Igoe@AlterIgoe
Michael Igoe is a Senior Reporter with Devex, based in Washington, D.C. He covers U.S. foreign aid, global health, climate change, and development finance. Prior to joining Devex, Michael researched water management and climate change adaptation in post-Soviet Central Asia, where he also wrote for EurasiaNet. Michael earned his bachelor's degree from Bowdoin College, where he majored in Russian, and his master’s degree from the University of Montana, where he studied international conservation and development.
