UNITED NATIONS, (APP): The UN’s a trade and development body has downgraded its global economic growth projection for 2022 to 2.6% from 3.6% due to the Ukraine war and to changes in macroeconomic policies made by countries in recent months.
In an update to its Trade and Development report published on March 24, UNCTAD says while Russia will experience a deep recession this year, significant slowdowns in growth are expected in parts of Western Europe and Central, South and South-East Asia.
The ongoing war in Ukraine is likely to reinforce the monetary tightening trend in advanced countries following similar moves that began in late 2021 in several developing countries due to inflationary pressures, with expenditure cuts also anticipated in upcoming budgets.
The report expresses UNCTAD’s concern that a combination of weakening global demand, insufficient policy coordination at the international level and elevated debt levels from the pandemic, will generate financial shockwaves that can push some developing countries into a downward spiral of insolvency, recession and arrested development.
“The economic effects of the Ukraine war will compound the ongoing economic slowdown globally and weaken the recovery from the COVID-19 pandemic,” UNCTAD Secretary-General Rebeca Grynspan said.
“Many developing countries have struggled to gain economic traction coming out of the COVID-19 recession and are now facing strong headwinds from the war. Whether this leads to unrest or not, profound social anxiety is already spreading.”
Even relatively wealthy countries that are struggling with multiple cost-of-living pressures have already sought help from the international system to keep them afloat.
“Pakistan went back (to the IMF) at the end of last year,” said Richard Kozul-Wright, Director, UNCTAD Division on Globalization and Development Strategies, speaking in Geneva. “Sri Lanka has now gone to the IMF (International Monetary Fund) to organise a programme. Egypt, which was already under a programme, has gone back to the IMF to renegotiate. And these are countries – these are not least developed countries, these are middle-income countries that are under very serious economic and in some cases political pressure, as a consequence of the shocks that they now face.”
UNCTAD’s policy recommendations include the need for global financial reform to allow developing countries the economic space for “reasonable growth” so that they can service potentially crippling debt levels.
“Debt servicing in 2020 for developing countries excluding China was already $1 trillion, that was the kind of financial pressure that developing countries are in,” Kozul-Wright said.
“We know and we have argued in the past that the initiatives from the G20, the Debt Service Suspension Initiative is welcome, we welcomed it, but it was clearly insufficient, it provided something of the order of $11 billion for the countries that were eligible.”
Even without lasting financial market disruptions, developing economies will face severe constraints on growth, it was pointed out. During the pandemic, their public and private debt stocks have increased. And issues that receded from view during the pandemic, including high corporate leverage and rising household debt in middle-income developing countries, will resurface as policy tightens.
With inflation on the rise and developing countries already weighed down by a $1 trillion debt burden to pay back to creditors, the UN body decried the inadequate financial measures already taken to help them withstand exchange rate instability, rising interest rates and soaring food and fuel prices.
Wholesale multilateral fiscal reform – possibly on the scale and ambition of the US Marshall Plan that shouldered Western Europe following the Second World War – is urgently needed to improve the financial liquidity of developing countries to prevent them – and even middle-income countries – from potentially going under, UNCTAD insisted, as it appealed to the International Monetary Fund (IMF) and World Bank.
“There is a rapidly worsening outlook for the world’s economy and to think that this year, the year after two years of crisis with COVID-19, the average rate of growth of the world economy will be 2.6 per cent, down from 5.5 per cent last year, and down from the projections that were made in the last quarter of 2021,” said Ms Grynspan, the UNCTAD chief.
In particular, she called for “emergency measures from the IMF and World Bank”, namely the activation of rapid funding instruments which IMF can provide to help countries with a looming balance of payments problems.
“Conditions are worsening for everybody,” continued the UNCTAD chief, noting how the climate crisis has played its part, along with successive droughts in the Horn of Africa, the ongoing COVID-19 pandemic and war in Ukraine.
But it is the world’s poorest, import-dependent countries that will be worst hit by the global economic downturn, UNCTAD stress.
“The brunt is being carried by the developing countries because of the rise in prices of food, of energy and fertilizers that is very steep and also the financial stretch under which the developing countries are already under,” Ms Grynspan said.
Although “all regions of the global economy will be adversely affected by this crisis”, Kozul-Wright suggested that “high commodity exporters” were likely to do well from a rise in prices. “But the European Union will see a fairly significant downgrade in its growth performance this year…so will parts of central and southern Asia as well,” he said.
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