Finance at the heart of major challenges to just, equitable, and inclusive development

This March, 20 years ago, the first International Conference on Financing for Development was convened under the auspices of the UN in Monterrey, Mexico. It was significant for several reasons. 

The Conference was an initiative of the Group of 77 (G77), the coalition of more than a hundred  developing countries, which shared growing discontent over the systemic failures of the international financial architecture. It was the first gathering of its kind spotlighting the deep cracks of this global economic and financial system through which countries of the South often fell through, and the need to mobilize financial resources to resolve persistent conditions of inequality, deprivation and impoverishment. It also sought to bring debates on the global economic and financial system back to the UN where countries are more assured of equal footing, rather than in narrow decision-making processes of international financial institutions and North governments where the richest countries hold sway.  

Today, several promises of the 2002 outcome document, the Monterrey Consensus, remain not only unfulfilled but rolled back, starting with the main goal “to eradicate poverty, achieve sustained economic growth and promote sustainable development as we advance to a fully inclusive and equitable global economic system”. Many of the financing for development issues remain unresolved and cracks have all the more deepened. There is no clearer indictment of systemic failure than the multiple crises intensified and exposed by COVID-19 that continues unabated especially in South countries.  

Speaking last March 17 at the annual conference of the group of open-minded states called the “Friends of Monterrey”, APMDD Coordinator Lidy Nacpil, underscored the key role of development finance in addressing the multiple crises of economic recessions, public health and climate.

“Finance is at the heart of every major challenge to just, equitable and inclusive development that is compatible with the health of the planet, most especially now at this time of multiple crises….The multiple crises should be taken as an opportunity to take decisive steps in transforming the global economic and financial system” but recommendations laid out in the draft Financing for Sustainable Development Report (FSDR) “fall short of taking the multiple crises as an opportunity to take decisive steps to transform the global financial system and begin constructing a new one that serves the needs and interests of people and the safety of the planet.” 

She reiterated key and urgent issues that civil society organizations* have consistently been raising, in light of serious gaps in the draft FSDR which will be adopted during the 2022 session of the UN Economic and Social Council (ECOSOC) Forum on Financing for Development Follow-up (FfD Forum)  in April 2022. 

a. The establishment of  a Sovereign Debt Workout Mechanism under the auspices of the UN that would comprehensively address unsustainable and illegitimate debt, including through extensive debt cancellation for all countries in need. 

b.  The establishment of a universal, UN intergovernmental tax body and a UN Tax Convention to comprehensively address tax havens, tax abuse by multinational corporations and other illicit financial flows through a truly universal, intergovernmental process at the UN, with broad rights holders’ participation.  

c. The delivery by  Global North countries of their full climate finance obligations.

d.  Agreement on a moratorium on Investor-State-Dispute-Settlement (ISDS) cases, removal of all ISDS provisions in all bilateral investment treaties and trade and investment agreements and the urgency for members of the World Trade Organization to adopt without delay a waiver from the obligations under the TRIPS agreement for health technologies and products related to COVID-19 countermeasures.

e. The regulation of Credit Rating Agencies (CRAs). 

f. Review development outcomes of public-private-partnerships, blended finance and other financing mechanisms that promote a ‘private finance first’ approach to infrastructure and public services. 

g. The acceleration of the implementation of the official development assistance (ODA) commitments to fulfill and exceed the 0.7% target for ODA in the form of unconditional grants. 

h. The Assessment of  systemic risks posed by unregulated or inadequately regulated financial sector instruments and actors.

i.  A Global technology assessment mechanism at the United Nations. 

j. Ensuring fiscal space and scaling up international cooperation for decent jobs creation and universal social protection in line with SDGs and ILO standards.

*Lidy Nacpil spoke on behalf of the CSO Financing for Development Group, an open civil society platform involving more than 800 organizations (with more than 950 individual members), and the Women’s Working Group on FfD.  

For the full text of her input, see Civil Society Perspectives on the Thematic Chapter of the 2022 Financing for Development Report. 

Civil Society Perspectives on the Thematic Chapter of the 2022 Financial for Development Report (Full Text) 

Delivered by Lidy Nacpil, APMDD Coordinator on behalf of the Civil Society on Financing for Development Group (CSOs on FfD) at the 6th Friends of Monterrey Retreat

March 17, 2022

On behalf of the Civil Society Financing For Development Group, I would like to express our thanks for the opportunity to share our views and concerns as part of this panel.

1. We are a wide network of CSOs spanning all regions globally, who have actively and closely engaged in the UN Financing for Development process since the beginning, based on our firm conviction that Finance is at the heart of every major challenge to just, equitable and inclusive development that is compatible with the health of the planet. Most especially now at this time of multiple crises. 

2. I would like to be quite frank in expressing our disappointment in the draft FSDR 2022.  The multiple crises should be taken as an opportunity to take decisive steps in transforming the global economic and financial system.  The global financial system – is riddled with its own internal, inhuman, irrational and unjust logic, policies and practices. The FSDR report falls short of taking the multiple crises as an opportunity to take decisive steps to transform the global financial system and begin constructing a new one that serves the needs and interests of people and the safety of the planet.

3. Finance capital and the financial system should be based in and serve the real economy – production  and social reproduction. But the financial system cannot be made just and fair unless the economic order it emanates from and should support is also changed. The construction of a new financial system must be part of a larger agenda and process of changing the global economic order. 

4. As we reviewed the thematic chapter and the whole report - we find that it does not depart from the logic of the current system.  The framework,  analyses,  options and recommendations it provides largely ignore 1) the huge inequalities across economies  2) the unjust economic,  financial and power relations across countries,  3) the flaws in the orientation and structures of domestic economies, 4)  the net outflow of resources from the South to the North including those in the form of illicit financial flows, interest rates on unsustainable and illegitimate debt and supply driven and predatory lending,  imbalances in trade due to unfair trade relations and the cultivation of import dependence of Southern countries – 5) and the constraints all of these impose on the abilities of countries of the global South to generate and mobilize financial resources for the fulfillment of the needs and basic rights of their people.  

a. We find a disjunct between the Report and sustainable development goals and strategies.  

b. In particular, we are gravely concerned that the Thematic Chapter and the whole Report focuses too much on improved access to and modalities of credit and access to capital markets as means for “long-term, affordable and stable financing.”   

5. My colleagues will be sharing in greater detail our concerns and perspectives in the succeeding sessions.

6. I  would like to take this opportunity to reiterate the following key and urgent issues we have been raising:

a. The establishment of  a Sovereign Debt Workout Mechanism under the auspices of the UN that would comprehensively address unsustainable and illegitimate debt, including through extensive debt cancellation for all countries in need.  

b.  The establishment of a universal, UN intergovernmental tax body and a UN Tax Convention to comprehensively address tax havens, tax abuse by multinational corporations and other illicit financial flows through a truly universal, intergovernmental process at the UN, with broad rights holders’ participation.  

c. The delivery by  Global North countries of their full climate finance obligations 

d.  Agreement on a moratorium on Investor-State-Dispute-Settlement (ISDS) cases, removal of all ISDS provisions in all bilateral investment treaties and trade and investment agreements and call upon WTO Members to adopt without delay a waiver from the obligations under the TRIPS agreement for health technologies and products related to COVID-19 countermeasures. 

e. The regulation of Credit Rating Agencies (CRAs).  

f. Review development outcomes of public-private-partnerships, blended finance and other financing mechanisms that promote a ‘private finance first’ approach to infrastructure and public services.  

g. The acceleration of the implementation of the official development assistance (ODA) commitments to fulfill and exceed the 0.7% target for ODA in the form of unconditional grants. 

h. The Assessment of  systemic risks posed by unregulated or inadequately regulated financial sector instruments and actors. 

i.  A Global technology assessment mechanism at the United Nations 

j. Ensuring fiscal space and scaling up international cooperation for decent jobs creation and universal social protection in line with SDGs and ILO standards 

And finally we ask that civil society be enabled to fully participate in all segments of the process, including as observers to the negotiations and ensure that all negotiation drafts are shared with civil society at the same time as member states to enable timely contributions.  

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Apart from harsh conditionalities, IMF also imposes surcharges on the loans received by Pakistan. These surcharges and unnecessary and harmful and should immediately be withdrawn. Pakistan already paid an estimated US$65 million in surcharges from  2018 to 2020. That means over 11 billion Rupees. Pakistan is projected  to pay $392 million more from 2021-2030.  

Surcharges are  fees that  the IMF charges member-countries for  late payments and loans that exceed their quotas. There are two types of surcharges:  quota-based are applied when the size of the country’s loan exceeds 187.5 percent of its IMF quota; and, time-based which are applied to loans outstanding after 35 to 51 months, depending on the credit facility.

Member-states (especially middle income)  borrow from IMF when experiencing crises to assist in their balance of payments problems, financial crises, or unmanageable fiscal deficits and excessive debts. Ironically, however, IMF “assistance” means that countries facing greater crises, are also the ones facing the greatest risk of eventually defaulting and/or borrowing more.

Pakistan is one of the biggest borrower-countries of IMF. In 2020, Pakistan’s total public debt already stood at 87% of GDP. In dollar terms, Pakistan paid external debt service amounting to US$14.6 Billion in 2020.

Surcharges are paid in addition to interest payments and principal amortizations, thus adding to the country’s debt burden. This, despite the fact that Pakistan's present PTI government has fulfilled almost all harsh conditionalities of IMF, resulting in historic price hikes and deepening poverty.  

To receive the last trench of the IMF $6 billion loan approved in 2019, Pakistan met several conditions in the mini budget passed on 23 January 2022 as well as in a bill to hand over the administrative and political powers of the State Bank of Pakistan to IMF, ostensibly to “grant [it] more autonomy”.

The agriculture sector is about to be the first victim of this economic decision. Farmers have been holding protests against the government for the shortage of essential crop inputs, expensive agriculture equipment and tools, and higher taxes. 

Withdrawing subsidies including for food, electricity, fertilisers and fuel has resulted in greater costs  for farmers. Electricity subsidies for tube-wells have  been totally withdrawn and thus watering crops has become even more expensive. The average expenditure contraction in 2021 was projected at 3.3% of GDP. 

Social Protection has been shifted for the rich. The wealthy, including the agriculture business companies, have been bailed out by state subsidies. 

Meanwhile, due  to so-called rationalisation and narrow targeting, the poorest section of the population receives much smaller social protection benefits, while most people are excluded. Out of 80 million, only 1.5 million people have been able to benefit.

Imposition of IMF austerity conditionalities and levying surcharges have also contributed to the dire state of public services such as the health sector which has been downsized or privatised. The introduction of health cards is the latest and the biggest scam that only favours private hospital mafia. Public money is handed over to private health companies in  the name of providing health facilities for the poor.  

As many as 10 million Pakistanis have already been pulled into absolute poverty. Up to 46% of the population (over 80 million) was already below the poverty line before the pandemic. This is  estimated to increase by 5-6% due to the multiple crises intensified by Covid-19. 

Pakistan’s massive and increasing debt burden means that it is compelled to meet debt service requirements at great human and social cost. For now, gone are the concerns about how to “pay for” it all. Instead, we are seeing wartime levels of spending that do not redound to people’s benefit, which have increased  deficits and the public debt  to new highs. Working classes have been forced to bear the effect of this mounting debt burden through more indirect taxation, as a result.

It is unconscionable that the IMF has collected over $4 billion in surcharges since the start of the COVID-19 pandemic and made surcharges the IMF's largest source of revenue for that period. 

We call on the IMF’s Executive Board to carry out an immediate review of the surcharge policy, ensure transparency around past and future surcharge payments, and challenge it to align the institution with its mandate by eliminating surcharges. 

We call on the Pakistan government for a Debt and surcharges retirement of at least four years and spend the saved amount on public services, including massive grants for farmers and peasants in the prices of oil, electricity and gas. 

Farooq Tariq, Saima Zia

Pakistan Kissan Rabita Committee

Asian Peoples’ Movement on Debt and Development (APMDD) 

Khalid Shah

Committee for the Abolition of Illegitimate Debt (CADTM)