Opinion | Will Hong Kong or Singapore finance the Global South’s pressing needs if the rich North won’t?

The global financial system has failed to divert sufficient assets to support developing countries in meeting the Sustainable Development Goals

If the Global South is to be heard on the global stage and shape its own future, its financial institutions must step up

Reading Time:4 minutes

Hong Kong’s Central district as seen on August 11. As a financial hub, does Hong Kong have the right set of financial institutions to intermediate the supply and demand for funding the structural transformation of the Global South? Photo: Reuters

Published: 9:00pm, 22 Sep 2023

The global financial system is in a bind. While interest rates may be peaking, global debt is at a record high and geopolitical and climate disaster risks are looming.

The United Nations said the funding gap for developing countries to meet the 2030 Sustainable Development Goals (SDGs) is around US$4 trillion per year, or roughly 4 per cent of world GDP. In its August report on lifting economies out of poverty and beginning its net-zero transformation, McKinsey Global Institute estimated that the world would need investment of 8 per cent of global GDP annually this decade.

Although these numbers are high, McKinsey’s study showed that funding for change is available – provided there’s political will. From 2000 to 2021, it said, the global balance sheet grew 1.3 times faster than GDP, with about US$500 trillion in financial sector assets. A global financial system with such assets (US$486.6 trillion according to Financial Stability Board estimates) should not find funding of between US$4 trillion and US$8 trillion impossible to achieve.

But one reason the global financial system is reluctant to fund the SDGs is that the advanced rich countries are taking a lot of the global savings. The United States alone had a net international investment deficit of US$16.2 trillion at the end of 2022.

Due to these large US fiscal deficits, the Congressional Budget Office estimated that the US federal budget deficit would fall from 12.4 per cent of gross domestic product in 2021 to 3.7 per cent of GDP this year. It estimated that the deficit would rise to 6.1 per cent of GDP by 2032 – significantly larger than the average deficit of 3.5 per cent of GDP over the past 50 years.

US Secretary of State Antony Blinken leaves after speaking at the UN Sustainable Development Goals Summit at the United Nations General Assembly on September 19. Photo: Pool via AP

In short, if the rich countries do not devote funding towards the SDGs, and instead spend on domestic defence and consumption, the world is doomed to have a burning planet and social disorder.