Developing countries are being sacrificed, in the struggle for affordable funding

A credit rating is an assessment of how likely it is that a borrower, for example the government, will be able to pay its debts on time and in full. For sovereign states, the ranking influences the amount the country pays for loans in international markets: the lower the ranking, the higher the perceived risk and usually the higher the interest costs.

The current system too often relies on “outdated and incomplete information”, leaving countries affected by unfair sanctions in global capital markets, the UN Deputy Secretary General Amina Mohammed narrates the opening of the United Nations Economic and Social CouncilECOSOC, Special Meeting on Credit Ratings, delivered remarks on behalf of Secretary General António Guterres.

“Adequate and timely funding is the fuel that drives sustainable development,” said the Deputy Secretary General, warning that “currently fuel is running low and the price is getting more expensive.”

He put the annual debt service costs in developing countries at nearly $1.4 trillion, although it is more than that 3.4 billion people live in countries that spend more money on debt interest payments than on health or education.

Global instability

Mohammed’s mother added to that Global instability exacerbates this crisis. Rising fuel and raw material costs associated with conflict and economic instability further increase fiscal pressures and slow growth, while countries vulnerable to climate change continue to face disaster losses without having access to affordable recovery financing.

“This is a very important issue,” said Ms. Mohammed.

Debt reform efforts are expanding

Ms Mohammed also linked the credit ratings debate to broader efforts to reform the global debt architecture and pointed to new measures aimed at giving developing countries a stronger voice in debt discussions.

This includes borrower platforms, principles of responsible sovereign borrowing and borrowing, and a UN-led process that brings together debtor and creditor countries, private creditors, international financial institutions, academia and civil society.

He also cited the African Credit Rating Agency’s plans as an example of efforts to improve data, transparency and risk assessment.

Calls to reorganize the rankings

Ms Mohammed called for major changes in the way country rankings are designed, arguing that the assessments must capture not only vulnerabilities, but also opportunities.

“We must change the mindset from long-term speculation to long-term investment,” he said, calling for a broader, transparent and forward-looking methodology that better reflects a country’s real prospects.

Ms. Mohammed emphasized that affordable loans for development can strengthen a country’s solvency in the future.

Investments in health, education, infrastructure, climate resilience and renewable energy, he said, can generate prosperity, reduce risk and increase economic stability over time.

He also criticized narrow measures of progress, and asserted that “GDP tells us the cost of everything and the value of very little.”

Ms Mohammed called for greater accountability from governments, investors and ratings providers, as well as stronger data and fairer methodologies.

“It is time to transform credit ratings from an obstacle to a contributor to long-term finance and sustainable development,” said Ms. Mohammed, urging a new approach that helps developing countries get the funding they need.