“When I reflect on my twelve years at the head of Senegal, one lesson prevails: the international financial system is unfavorable to developing countries like mine.
No matter how strong our economic policies are, we are seen as a risky bet. Our access to capital is both restricted and prohibitively expensive. Our fiscal and monetary policies are dictated, in effect, by distant central banks. And when we try to protest, we find we have no voice.
It took a pandemic and the economic implosion that followed for these flaws to come to light. This has led the United Nations and the International Monetary Fund (IMF) to call for a new “Bretton Woods”: a thorough reform of international financial institutions.
Four years later, with Covid under control and a fragile global economic recovery underway, reform zeal risks fading as the sense of urgency fades.
But for most of us in the developing world, these efforts have been insufficient. The multiple crises we face have not disappeared. In the last three years alone, ten developing countries have experienced 18 sovereign defaults, more than all the debt defaults of the previous two decades combined.
Global inequality continues to widen
According to the World Bank, 60% of low-income countries are at high risk of debt distress or already facing it. Interest payments from these countries have quadrupled over the past decade as global interest rates have soared. To meet debt repayments, low-income countries are cutting spending on education, health and other public services. In doing so, they also sacrifice their right to a better future.
Africa now pays more in debt service than it needs to invest in climate resilience, estimated at $50 billion per year. The European Union’s external debt reached $824 billion in 2021, with countries dedicating 65% of their GDP to servicing these obligations.
At the World Bank and IMF spring meetings this year, the IMF warned that global inequality was widening and “the poorest countries were falling further behind.”
It is more urgent than ever to make the international financial system fairer, more responsive to the real needs of developing countries and more representative of the global community.
Last year in Paris, during a global summit called by French President Emmanuel Macron, 32 countries, including Senegal, agreed on the Paris Pact for People and Planet (P4).
Our objectives are clear: to create a world where poverty has been eradicated and the planet preserved, and where vulnerable countries are better equipped to face crises. To do this, we aim to mobilize all sources of financing, and this is why reform of the international financial system is a priority.
We know that many institutions share our goals and we do not wish to duplicate their efforts. Instead, we advocate a new approach, which I call “inclusive multilateralism.”
We seek to bring together as many countries as possible, from all continents and income levels, overcoming the divisions – East versus West, North versus South, greens versus polluters – that have blighted initiatives in the past.
Rewriting the rules of global finance
As a platform, we can already report some progress. For example, our campaign for greater participation of developing countries in the governance of international financial institutions is taken into account.
Last October, IMF members approved the expansion of its board of directors to a third representative from Africa out of 25, which will help strengthen the continent’s voice in economic and financial affairs.
But there is still a long way to go.
We also encourage governments to require objective, transparent and measurable criteria for the assessment of sovereign risk by rating agencies.
Research by the United Nations Development Program (UNDP) shows that these agencies systematically assign higher risk ratings to poor countries, without taking into account the economic realities on the ground.
This has led to a situation where, on average, African countries pay four times more on their loans than the United States and eight times more than the richest European economies. Our access to development and climate finance depends on ending this financial discrimination.
Another objective is to attract at least one euro of private financing for each euro of public financing dedicated to development, climate and nature.
We invite other countries to join the Paris Pact to rewrite the rules of global finance, give developing countries greater leverage in international financial institutions, and mobilize funds for sustainable growth.
We hope to create a new global and inclusive financial order, fit for the 21st century.”
The opinions expressed in this article are those of the author and not those of Context or the Thomson Reuters Foundation.
