The UNCTAD’s Least Developed Countries Report 2023 underscores that the world’s least developed countries, particularly 33 in Africa, are disproportionately burdened by the expenses associated with the global transition to a low-carbon economy.
The United Nations Conference on Trade and Development (UNCTAD) advocates for urgent reforms in the international financial architecture (IFA) tailored to address the unique financing needs of the 46 least developed countries (LDCs).
The report points out that the existing IFA is inadequate for handling systemic shocks and mobilizing resources at the necessary scale for LDCs. Fiscal constraints in these countries pose a serious threat to implementing essential development policies, potentially hindering progress toward the UN Sustainable Development Goals (SDGs) and a low-carbon transition.
Highlighting the substantial financing requirements for structural transformation in LDCs, such as shifting towards high-productivity activities and sectors, the report emphasizes the need for over $1 trillion in annual investments for LDCs to double their manufacturing share in GDP, as per pre-pandemic estimates.
The report criticizes the shortcomings of current external financing for LDCs, citing economic and political conditionality, inefficiency, and high costs. UNCTAD calls for a significant increase in development and climate finance, including grants and low-cost loans under highly concessional conditions.
The escalating debt service burden, impeding public expenditure crucial for SDG achievement, is a key concern. UNCTAD urges bilateral donors to fulfill their commitments by increasing official development assistance to the targeted levels in international agreements. Additionally, the report identifies the forthcoming launch of the Loss and Damage Fund at COP28 as a potential game-changer for LDCs.
The report sheds light on an “entrenched bias” within credit ratings agencies, asserting that sovereign ratings often rely more on subjective assessments than on ‘fundamental’ variables related to debt sustainability. It argues that this bias leads to significant misestimating of risk for African countries, ultimately causing LDCs to bear the brunt of the costs of the global low-carbon transition. UNCTAD emphasizes the necessity for a lasting solution to the debt crisis, including improved debt management, transparent debt contracts, and the establishment of an efficient debt workout mechanism. Furthermore, the report calls on the international community to assist LDCs in enhancing their state capacity for tax generation, fiscal resource management, and long-term spending on development projects and climate adaptation. In 2021, debt service in LDCs reached $27 billion, marking a staggering 37% increase from the previous year’s $20 billion.