The world’s richest are leaving the poorest to deal with the global debt crisis alone

By Mark Malloch-Brown * – POLITICO

Without fixing the debt and poverty crisis, we won’t even get close to fixing the global climate crisis, which threatens us all.

If the richest countries in the world can’t find the will to face the global debt crisis, what are the chances they’ll tackle the climate crisis?

This is the question looming over this week’s G7 summit in Hiroshima, Japan.

And as the leaders of the world’s richest countries meet, it is Malawi’s Finance Minister Sosten Gwengwe who should be at the forefront of their minds — though he probably won’t be.

Malawi, an African nation of almost 20 million people, has the unfortunate distinction of being the poorest democratic nation on the planet. And at this year’s spring meetings of the World Bank and the International Monetary Fund (IMF) in Washington, Gwengwe delivered a grim, personal account of what it’s like to be on the receiving end of an accelerating global debt crisis — as well as the impact being wrought on his country by the parallel, and worsening, climate crisis.

Much like its neighbor Zambia, Malawi was one of several African countries pushed into debt distress by the COVID-19 pandemic, as well as the spike in costs of imported fertilizer and fuel following Russia’s invasion of Ukraine. With inflation running at just over 26 percent in February, Malawians are struggling to pay for basic necessities, and the country’s government is currently in debt-restructuring talks with creditors.

If this wasn’t damaging enough, in March, Malawi was struck by Cyclone Freddy — one of the strongest tropical storms on record. Wreaking havoc across the Indian Ocean and Southern Africa over a five-week period, it left over 1,000 dead and thousands homeless in the capital city of Blantyre after flash floods.

The storm’s impact on Malawi’s bottom line has been enormous. The price of corn — the country’s staple food — has soared to record levels and is now 300 percent higher on average than the same time last year. Meanwhile, Fitch, international ratings agency, has slashed Malawi’s 2023 real GDP growth forecast from 3.7 percent to just 0.7 percent.

At the IMF and World Bank meetings, there was wide recognition of the need for action, as well as the threat posed by the global debt crisis to countries like Malawi and Zambia, where debt-restructuring talks have already been going on for over two years.

However, there was a tragic lack of ambition — and frankly little urgency — on the part of the prosperous, democratic, industrialized countries of the Global North.

The World Bank estimates that in order to address the global challenges of climate change, conflict and pandemics, average annual spending on developing countries should be in the region of $2.4 trillion between 2023 and 2030. That is 10 times what the richest nations currently spend on overseas development assistance each year.

Yet, at these spring meetings, shareholders, once again, failed to tackle the issue head on — instead ambitiously welcoming a move to increase the World Bank’s lending capacity by just $5 billion a year, over a 10-year period. And though Japan, the United Kingdom and France all agreed to boost low interest funding through the IMF, they balked at proposals from developing countries — including China and Brazil — for leading economies to inject more capital into the World Bank. Meanwhile, this week’s $3 billion debt agreement for Ghana is a modest but overdue breakthrough.

The unfortunate reality is that, for many leaders in the Global North, international assistance is now a secondary priority, as domestic issues and Russia’s war in Ukraine are dominating their agendas. But while rightly supporting one democracy in Kyiv, they are perhaps failing an even greater challenge — of proving that democracy, and democratic decision-making, can deliver the solutions our planet needs.

And anger in the Global South is growing too. Over the course of the spring meetings in Washington, delegates highlighted multiple times the contrast between the matter of days needed to bail out Silicon Valley Bank or Credit Suisse, and Zambia — which is still awaiting a deal with its creditors.

However, there are still opportunities for a fresh more ambitious approach.

What we need is ambition from the World Bank to step up funding for green transition projects that will move countries away from fossil fuel dependency, and put the brakes on “dirty” infrastructure.

We need political commitment from the rich G7 countries convening in Japan that they will drastically increase development funding — and display the kind of urgent resolve we saw in response to the global financial crisis of 2008.

We also need ambition in June, when France convenes a Summit for a New Global Financing Pact in Paris, focusing — for the first time ever — on creating a global financing system that would shift funds to the Global South to address the costs of climate damage, in countries including Malawi.

And finally, we all need to acknowledge a fundamental truth — that without fixing the global debt and poverty crisis, we won’t be able to even get close to fixing the global climate crisis, which ultimately threatens us all.


*President of the Open Society Foundations, the world’s largest private human rights foundation, and the former U.N. Deputy Secretary-General.