HomeUnited NationsPolicy mistakes could trigger worse recession than 2007 crisis: UNCTAD

Policy mistakes could trigger worse recession than 2007 crisis: UNCTAD

Also, large multinational corporations with considerable market power appear to have taken undue advantage of the current context to boost profits on the backs of some of the world’s poorest.

‘Political will’

For much of the last two years, rising commodity prices – particularly food and energy – have posed significant challenges for households everywhere. Despite this, leading central banks are sharply raising interest rates, threatening to cut off growth and making life much harder for the heavily indebted. As climate stress intensifies, so do losses and damage inside vulnerable economies that lack the fiscal space to deal with disasters. [embedded content]
Excessive monetary tightening and inadequate financial support could expose developing world economies further to cascading crises, the agency said. And while upward pressure on fertilizer prices threatens lasting damage to many small farmers around the world, commodity markets have been in a turbulent state for a decade.

Grim outlook

And climate shocks are heightening the risk of economic instability in indebted developing countries, seemingly under-appreciated by the G20 major economies and other international financial bodies. “There is still time to step back from the edge of recession,” said UNCTAD chief Rebeca Grynspan. Although the UN-brokered Black Sea Grain Initiative has significantly helped to lower global food prices, insufficient attention has been paid to the role of speculators and betting frenzies in futures contracts, commodity swaps and exchange traded funds (ETFs) the report said. “This is a matter of policy choices and political will,” she added, noting that the current course of action is hurting the most vulnerable.

Debt crisis

UNCTAD is warning that the policy-induced global recession could be worse than the global financial crisis of 2007 to 2009. With 60 per cent of low-income countries and 30 per cent of emerging market economies in or near debt distress, UNCTAD warns of a possible global debt crisis. The global slowdown will further expose developing countries to a cascade of debt, health, and climate crises. UNCTAD has asked governments to increase public spending and use price controls on energy, food and other vital areas; investors to channel more money into renewables; and called on the international community to extend more support to the UN-brokered Grain Initiative. “Developing countries have already spent an estimated 9 billion of reserves to defend their currencies this year,” almost double the amount of the International Monetary Fund’s (IMF) recently allocated Special Drawing Rights to supplement their official reserves. 

Women pan for gold by using mercury at the Worognan mining site in Bougouni, Mali.
And as the prices of necessities like food and energy have soared in the wake of the Ukraine war, a stronger dollar worsens the situation by raising import prices in developing countries.

Women pan for gold by using mercury at the Worognan mining site in Bougouni, Mali.

Hiking interest rates

The Development prospects in a fractured world report points out that supply-side shocks, waning consumer and investor confidence, and the war in Ukraine have provoked a global slowdown and triggered inflationary pressures. Moving forward, UNCTAD is calling for advanced economies to avoid austerity measures and international organizations to reform the multilateral architecture to give developing countries a fairer say. Middle-income countries in Latin America and low-income countries in Africa could suffer some of the sharpest slowdowns this year, according to the report. © UNICEF/Tanya Bindra

Calm markets, dampen speculation

And while all regions will be affected, alarm bells are ringing most for developing countries, many of which are edging closer to debt default. The report projects that world economic growth will slow to 2.5 per cent in 2022 and drop to 2.2 per cent in 2023 – a global slowdown that would leave GDP below its pre-COVID pandemic trend and cost the world more than trillion in lost productivity. Countries that were showing signs of debt distress before the pandemic are being hit especially hard by the global slowdown. The UN body is requesting that international financial institutions urgently provide increased liquidity and extend debt relief for developing countries. It’s calling on the IMF to allow fairer use of Special Drawing Rights; and for countries to prioritize a multilateral legal framework on debt restructuring. Meanwhile, interest rate hikes in advanced economies are hitting the most vulnerable hardest

Some 90 developing countries have seen their currencies weaken against the dollar this year – over a third of them by more than 10 per cent.

Source

Stay Connected
255FansLike
473FollowersFollow
Must Read
Related News