President Ranil Wickremesinghe expressed the need for a comprehensive dialogue between Western nations and China, the USA and China and the European Union and China, as a critical component of a robust international plan capable of addressing the global challenges anticipated in 2024.
President Wickremesinghe was delivering the opening speech on the first day of the ‘Berlin Global’ Dialogue in Berlin, Germany on Thursday.
The President cautioned that without immediate corrective measures, the world could be on the brink of another crisis. He acknowledged that many developing countries are burdened with substantial debt, highlighting the inadequacy of existing mechanisms like the IMF to address this new situation. President Wickremesinghe said that the current IMF negotiation process is not tailored to address countries in crisis.
The following is the full speech of President Wickremesinghe at the Berlin Global Dialogue under the theme ‘Worldwide Economic Shocks and the Impact on the Global South”:
“The global economy has had many shocks in the past two decades. Starting from 2008, we went through the European debt crisis, then the Covid pandemic, and the economic shocks that have come from it, the whole issue of funding for Climate Change, and the Sovereign Debt crisis.
In all these instances, it is the developing economies and the Global South that has suffered extremely. We are now faced with stubbornly high inflation in advanced economies, oil prices edging towards US$ 100 a barrel, and monetary tightening by global Central Banks.
Europe
One example is that Sri Lanka’s exports to Europe have not increased at all this year. That is an indication of how we are being affected as we try to recover from the crisis we face. The confluences of factors face serious risk for many developing countries. In the Global South, we are facing rising import costs, food, energy, insecurity, and the problems of our exports. The resulting Balance of Payment stress translates into a weaker economy for all of us.
The difference between the advanced economies and the developing nations is that you all have all the buffers and reserves to deal with these shocks. We do not. It is from here that the Sovereign Debt crisis started.
In this context, the world may be on to another crisis if corrective measures are not taken immediately. Many developing countries find themselves with large debt burdens. The IMF has no mechanism to face this new situation. When Sri Lanka declared bankruptcy, all foreign funding ceased and that started the political crisis.
If not for the help given by the World Bank in re-graduating Sri Lanka, and the help given by my old friend Samantha Power in funding us with fertiliser, the chances are that I may not be, I would not be able to come here today. I would not have been in the position.
There is no way in which you can help any country which declares bankruptcy. Germany is doing its part as the largest cumulative contributor to the Green Climate Fund. We have both Climate Change mitigation and debt restructuring, both of which we have to handle with the minimum funds available.
The funding on the table is woefully inadequate to address the vast challenges at hand. We have not got any money. But we do have US$ 100 billion with the IMF. Let’s start with that money.
That sum is better than nothing. Then let’s see how we can raise the rest of it.
Though I talk of Sri Lanka, I must say Africa’s needs, especially of the Low-Income countries, are far greater than ours. Developing countries require financing up to US$ 5.9 trillion to fulfill their nationally determined contributions. Then a further US$ 4 trillion for Clean Energy technology to achieve Net Zero emissions – look at Sri Lanka’s financing needs for our Climate Prosperity Plan (CPP) to succeed. We need US$ 26 billion by 2030.
With the IMF loans, we will have for the next few years a growth rate of 3.5 percent if you are lucky. Here again, global coordination and leadership to resolve these challenges have simply not been sufficient to address the magnitude of the urgency of the problem. So what we need here is a new architecture.
The many crises and shocks we have discussed today are interlinked. First, we all agree that the core of the international financial architecture today was designed almost 80 years ago. The world has seen dramatic changes since then with many emerging economies in Asia, Middle East, South America, and Africa becoming global economic powerhouses.
The international architecture has seen relatively mild reforms. The international financial architecture available makes the debt restructuring too complex. This we have all agreed on. The magnitude of the challenges discussed today requires ambitious action.
Developing nations will not be able to mobilise the financing required to combat Climate Change. There is an urgent need for a significant increase in the envelope of concessional financing made available through Multilateral Development Banks (MDBs).
MDB assets are considerable. It can be deployed in risk mitigating instruments. Tax havens are still left out of this question. Why do not bring in the same sanctions we have applied to Russia?
Concessional financing should be accessible by a broader group of countries, including the Middle Income nations facing numerous economic vulnerabilities. In the depth of Sri Lanka’s economic crisis of 2022, even though the country was implementing robust IMF supported reforms, the country could not access any new foreign concessional financing due to its situation or debt distress. The negotiations with the IMF are certainly not tailored for these situations. It’s still the old way of negotiating.
Roadmap
So then what do we require? I think we have a whole lot of proposals, starting from the Bridgetown Initiative onwards as to how to deal with it. The Paris Climate Summit is preparing a roadmap.
I am not going to add anything more to it. All I am saying is choose from this. Let’s act. But it is aggravated because the developing countries emerging from the prevailing economic challenges, including debt restructuring, open access to trade, investment, capital and technology.
Unfortunately, Great Power rivalries and geopolitics have been an emerging threat for such market success. The Washington Consensus was rejected in NSA Jake Sullivan’s address at the Brookings Institute. With the new concept of de-risking and decoupling, the developing South, which was compelled to follow the Washington Consensus, is now asked to do a 180 degree turn even without any consultation with us.
Since decoupling, and since the Brookings speech, whatever it is, we have been asked to change the system. We were compelled to get into it. Now we are told this is no longer relevant.
Belt and Road Initiative (BRI) has been labelled as a coercive program, and the participating countries like Sri Lanka are looked upon with suspicion. This will further hurt economic prospects in the Global South, and polarisation will become more evident.
For a country like Sri Lanka, we have learned to live with pressure from America, India, and China. I mean, that is nothing new for us anymore. The United States is witnessing an acrimonious run-up to the 2024 election year, which will detract from its ability to lead in this instance. It is creating a vacuum, because if the US wants a new order, the US must lead.
From now, till the end of next year, that leadership will gradually reduce as they start focusing more and more on their 2024 elections. Then what happens to the rest of us? Then, on the other hand, you are finding a challenge to G7 and QUAD, which is the expansion of the BRICS, what you call the BRICS Plus. The South is now looking for alternative leadership. And we can see the G20 has been downgraded. So in this situation, are we going to act in 2024?
We know in 2024, the US leadership may not be there. Then who is going to act? So I think it is a chance for the EU to come up and work with other countries. There is no one else. So I am suggesting that the EU, together with G20 BRICS, certainly the USA, and some selected other Asian and African nations not represented, the IMF and the MDBs, and you can also bring in the big financial institutions, private ones, sit down and find urgent solutions.
We are talking of the Summit for the Future in September next year. US Elections are in November next year. So I cannot see a Summit for the future bringing anything out before the elections take place in 2024. But 2024 is the year to act. We are watching 2024.
Realities
And whether we can come up with a new international architecture that better reflects the global realities of today and provide effective representation for those who need it. So we have the resources, we have the solutions, we just need the willpower to decide how it is going to be.
It has to be done urgently. We require a constructive dialogue between the West and China. We need a constructive dialogue between the US and China.
We need a constructive dialogue between the EU and China. Otherwise we will not move forward. So this is the stark reality. It is a question of how we get together and how we work, and who is going to take the lead in 2024.”
