IMF's Lagarde Emphasizes the Importance of Financing Sustainable International Development
IMF Chief Christine Lagarde during a speech at the Paris Forum in Paris, France, Tuesday (05/7). Photo by Privacy.

JAKARTA (TheInsiderStories) – International Monetary Fund (IMF) Managing Director Christine Lagarde stressed how to ensured the effectiveness and sustainable financing of international development. She said the focus of the world today is on sustainable debt for sustainable growth.

“We are all committed to seeing low-income countries make decisive and lasting advances in development. This commitment is embodied in the Sustainable Development Goals,” Lagarde said in his remarks in Paris Forum for a discussion on debt transparency, in Paris, France, Tuesday (05/07).

Noting the increasing global challenges nowadays, especially when the United States (US)-China tariff war negotiations deteriorate, Lagarde warned the countries to significantly increase spending to meet Sustainable Development Goals (SDGs) by 2030.

She added, the additional expenditure needs in key areas such as health, education and priority infrastructure represent an average of 15 percent of GDP in low-income developing countries – which is equivalent to around half a trillion US dollars in 2030.

Lagarde issued a warning about the threat trade tensions pose for the world economy and said it may take time for the US and China to resolve their issues. The comments came two days after tweets by US President Donald Trump warning of new tariffs on China, marking an escalation of hostilities amid talks aimed at brokering a solution between the two countries.

“For us at the IMF, it’s imperative that trade tensions are resolved in a way satisfying for everyone because clearly, tensions between the US and China are the threat to the global economy,” she noted.

China’ top trade negotiator, Liu He, still plans to visit the US this week for trade talks. Trump has said he intends to raise tariffs on US$200 billion of Chinese goods to 25 percent from 10 percent and may also impose duties “shortly” on $325 billion of Chinese goods that aren’t currently covered.

The deterioration of relations between the two countries with the largest economy certainly has a global impact, especially in low-income countries. Although noted, countries can increase as much as 5 percentage points of GDP in additional tax revenue, according to Lagarde, developing countries will also need support from the international community where US and China play a role, from bilateral donors, international institutions and the private sector.

It is time for the private sector to embrace a greater sense of social responsibility, focus more on long-term development and less on short-term profits, she said, while adding there is nothing wrong with borrowing for development – if done sustainably. In recent years, low-income countries have been able to access more financing. This partly reflects the relatively easy condition of global financing, according to IMF records.

She gave an example of the China Belt and Road Initiative as something that attracted the world’s attention. The Asian Infrastructure Investment Bank (AIIB) has also emerged as an important source of financing, and the Islamic Development Bank’s capital more than tripled recently.

Unfortunately, not all borrowers manage this increase in financing well, and others have been hit by significant economic shocks. The IMF estimated a rapid increase in the median debt burden to 47 percent of GDP in 2018 for low-income developing countries.

This increase was mainly concentrated in commodity producers. She noted, 43 percent of low-income developing countries are currently considered at high risk of debt suffering or already in debt difficulties, compared to 21 percent in 2013.

Therefore, Lagarde encourages the global community to find solutions that contain debt vulnerability. China, for example, has just announced a new framework to evaluate the sustainability of debt to recipients of Belt and Road – which is in line with the framework used by the World Bank and IMF.

This is a remarkable example of multilateralism in the workplace, global solidarity. We need to continue to push this initiative forward together, she concluded while encouraging all G-20 members to participate.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com

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