Leaving no economy behind

The UK G7 presidency must show leadership on the challenges developing countries will face in a post–COVID-19 world

We are likely at the most significant inflection point of our lives. Like previous generations who have faced era-defining challenges, we know the world cannot, and indeed will not, be the same when we emerge from this long COVID-19 crisis.

It is in this setting that the United Kingdom assumes the presidency of the G7 – a moment heavy with responsibility but also full of opportunity. Commonwealth member states are watching closely for signals of the UK’s agenda and focus.

For a long time the UK has been a powerful voice in support of developing countries, leading the charge at previous G7 meetings on both the Millennium and the Sustainable Development Goals, by setting and meeting ambitious targets on official development assistance and advocating for greater support for the world’s poor and for small states.

So why should the G7 again focus on the needs of developing countries, especially at a time of such vast global challenges?
Because I believe that now more than ever it is in the enlightened self-interest of all G7 members to pay special attention to small and developing states. If there is one defining lesson of the past year, it is of our interconnectedness and dependence on each other – a fact devastatingly demonstrated by COVID-19 and its mutations, showing us that until everyone is safe, no one is safe.

People are recognising that what is true for COVID-19 is also true for other pressing challenges whether economic, social or environmental. Around the world, the Commonwealth sees some key areas where action from the G7 could head off contagion and support a more sustainable future. These are equitable distribution of vaccines, climate change, debt sustainability and access to affordable finance.

ECONOMIC SCARRING

The World Health Organization is clear that the past few months have been the deadliest in the COVID-19 pandemic, with infections and deaths growing rapidly. But while developed countries such as the G7 members make significant progress on their vaccination programmes, smaller and developing states have been left behind. This not only leaves their populations unprotected, but also leaves them as potential breeding grounds for new more deadly or more infectious variants of the COVID-19 virus.

And in the smaller and developing countries, the impact of low vaccination rates is more than just a health issue: it causes severe economic challenges. Industries such as tourism are the lifeblood of many small countries and without widespread vaccination their economies will almost certainly grind to a halt, leaving a trail of poverty, insecurity and possible institutional collapse. Avoiding this type of economic scarring requires increased global support for access to vaccines.

In addition to the acute damage of the pandemic is the chronic long-term impact of climate change. This year the UK also chairs COP26, and while climate change is a global phenomenon and will affect all countries, it will not affect all countries alike. Some in the Commonwealth such as Kiribati already face an existential threat. They face specific and urgent climatic challenges, and we urge the G7 to support areas such as climate infrastructure, which small island countries desperately need but cannot afford. Other challenges revolve around debt sustainability and inadequate access to affordable finance. Although debt burdens rose in the decade before the pandemic and have spiked recently due to unprecedented stimulus packages, this general global trend masks a critical issue for developing countries, with some seeing sharp and sustained increases in their debt burden.

Rightly, the G20 has moved to provide liquidity support through its debt suspension initiative and support for debt-restructuring initiatives ring-fenced for low-income countries – but this support is restricted to those with low incomes. In fact, many small middle-income countries, which had little to no fiscal room to begin with, have been hit by vanishing income streams and are at the greatest risk of debt instability.

It is these countries that the G7 and G20 should be more worried about as their defaults would affect advanced-country private creditors far more profoundly than low-income borrowing. Global uncertainty about our return to normal and the economic recovery mean that without swift external assistance at scale, many of these states could quickly revert to becoming low-income countries, marked by high poverty, youth unemployment and political disturbance.

The G7 has a unique opportunity this year to respond rapidly on addressing these issues. The cost will be significant, but like vaccination programmes or lockdowns, far, far lower than the long-term costs and consequences of inaction. The United Kingdom leading as it does, the G7 and COP26 remain beacons of hope upon which the disadvantaged and small states rely.