October 4, 2022

The UN Conference on Trade and Development (UNCTAD) has warned against policy mistakes as they could trigger worse recession than the one witnessed in 2007.

In a report released on Monday, UNCTAD observed that the world would see global recession and prolonged stagnation if fiscal and monetary policies holding sway in some advanced economies were not quickly changed.

“There is still time to step back from the edge of recession.

“This is a matter of policy choices and political will,’’ UNCTAD chief Rebeca Grynspan, said.

According to her, the current course of action is hurting the most vulnerable.

UNCTAD is warning that the policy-induced global recession could be worse than the global financial crisis of 2007 to 2009.

The agency also warned that excessive monetary tightening and inadequate financial support could expose developing world economies further to cascading crises.

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.

It further warned that 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 said that as climate stress intensified, so would losses and damage inside vulnerable economies that lacked the fiscal space to deal with disasters.

The report projected that world economic growth would slow to 2.5 per cent in 2022 and drop to 2.2 per cent in 2023 – a global slowdown that could leave GDP below its pre-COVID-19 pandemic trend and cost the world more than 17 trillion dollars in lost productivity.

Amid this, it stressed, leading central banks are sharply raising interest rates, threatening to cut off growth, and making life much harder for the heavily indebted.

UNCTAD forecast that global slowdown would further expose developing countries to a cascade of debt, health, and climate crises.

The report projected that middle-income countries in Latin America and low-income countries in Africa could suffer some of the sharpest slowdowns in 2022.

UNCTAD warned of a possible global debt crisis with 60 per cent of low-income countries and 30 per cent of emerging market economies in or near debt distress.

“Countries that were showing signs of debt distress before the pandemic are being hit especially hard by the global slowdown.

“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.

“Developing countries have already spent an estimated 379 billion dollars of reserves to defend their currencies this year,” UNCTAD said.

It explained that the expenditure is almost double the amount of the International Monetary Fund’s (IMF) recently allocated Special Drawing Rights to supplement their official reserves.

The UN body is, therefore, calling on international financial institutions to urgently provide increased liquidity and extend debt relief to developing countries.

It is also calling on the IMF to allow fairer use of Special Drawing Rights; and for countries to prioritise 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.

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.

Moving forward, UNCTAD is calling for advanced economies to avoid austerity measures and international organiations to reform the multilateral architecture to give developing countries a fairer say.

For much of the last two years, rising commodity prices – particularly food and energy – have posed significant challenges for households everywhere.

And while upward pressure on fertiliser prices threatens lasting damage to many small farmers around the world, commodity markets have been in a turbulent state for a decade.

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.

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.

UNCTAD has, therefore, urged governments to increase public spending and use price controls on energy, food and other vital areas, investors to channel more money into renewables, and the international community to extend more support to the UN-brokered Grain Initiative (NAN)