Prime Minister of Jamaica Andrew Holness says the ‘middle-income’ designation given to developing countries has largely been unhelpful.
Speaking at the meeting of Heads of State and Government on the International Debt Architecture and Liquidity on Monday, Holness described the designation as one which has inhibited the crafting of a fair global response to the COVID-19 pandemic.
Holness explained that despite the fact that most developing countries have been able to meet their debt servicing obligations, this comes at a great social cost.
“For example, there are those who point to the fact that developing countries have,by and large, been able to meet their debt service commitments. It is true,” Holness said.
“However, debt servicing has come at tremendous socio-economic costs to our populations, which have borne the burden of steep cuts in public expenditure. Extreme fiscal contractions are having a dramatic impact on the ability of developing countries to meet their sustainable development and climate action commitments.”
“Developing countries designated as middle-income, and particularly in Small Island Developing States (SIDS), the pandemic has exposed developmental vulnerabilities, which make the designation as ‘middle-income’ a largely arbitrary and unhelpful designation in crafting a fair global response,” he added.
Holness used the occasion to point out that pre-existing fiscal weaknesses, coupled with other structural vulnerabilities, made it difficult for small nation states like Jamaica to easily transition towards a virtual economy.
“Aside from pre-existing fiscal weaknesses, other structural vulnerabilities such as over reliance on one industry, for example tourism, for revenues, a lack of adequate broadband infrastructure to support the transition to virtual economies and to support education severely limits the response of actions of developing countries…. and will inevitably force them to increase their borrowing,” said Holness.
Holness advanced the argument that a combination of efforts, including the further extension of the debt suspension initiative (DSSI), inclusion of private creditors in the DSSI framework and sensitization of credit rating agencies, would all be helpful to developing states.
“Another encouraging development has been the extension by the G20 of its Debt Service Suspension Initiative (DSSI) till the end of this year. I believe there is a sound basis for it to be further extended to next year. Consideration should also be given to expanding its beneficiaries to include highly indebted middle-income countries. Now, private creditors represent an increasingly large share of the overall creditor composition of developing countries, and should be actively pursued and engaged to participate in the DSSI,” he said.
“We need to bring the credit rating agencies into our discussions, as many countries are afraid to apply for debt relief because of the threat of a ratings downgrade. A special framework applicable only to this extraordinary period is more than worthy of their contemplation, given the larger medium-term cumulative benefits of more countries achieving earlier recovery with sustainable debt arrangements,” added Holness.