Soaring debt, interest rate hikes, and food prices threaten the future of developing nations as they grapple with a potential economic downturn
A Looming Economic Downturn for Developing Countries
The United Nations Trade and Development Conference (UNCTAD) has issued a stark warning for developing countries, highlighting the risk of another lost decade due to the global economy’s slowdown and increased financial turbulence. In its latest Trade and Development Report Update, UNCTAD cites growing global asymmetries that threaten developing nations’ resilience, requiring stronger multilateral action and a concentrated effort on sovereign debt architecture.
The Impact of Interest Rate Hikes on Developing Nations
The report estimates that developing countries may lose over $800 billion in income in the coming years due to interest rate hikes. Global growth in 2023 is projected to drop to 2.1%, down from the 2.2% forecast in September 2022. The decline comes as many developing nations face mounting debt, reduced investment in public and private sectors, and a shortfall of international liquidity that exacerbates their financial struggles.
The Persistence of High Food Prices
Food prices remain elevated in developing countries, largely driven by exceptionally high profit margins and the financialization of commodity trading. Food inflation, which accounts for 25% to 62% of the headline figure, exacerbates the cost-of-living crisis in these nations.
UNCTAD’s Call for a Bold International Economic Agenda
UNCTAD emphasizes the urgent need for a bold international economic agenda, including an overhaul of global debt architecture, greater liquidity, and robust financial regulations. The organization calls for the establishment of a multilateral debt workout mechanism, a registry of validated data on debt transactions, and improved debt sustainability analyses that consider development and climate finance needs.
The Opportunity Presented by IMF-World Bank Meetings
The ongoing IMF-World Bank meetings present a critical opportunity to strengthen development finance and address liquidity constraints facing countries in need. Issuing new Special Drawing Rights (SDRs) worth at least $650 billion and fulfilling G20 nations’ pledge to recycle $100 billion of their unused SDRs would help alleviate the heavy debt burdens hindering development prospects.
The Far-Reaching Consequences of Economic Turmoil
As the global economy slows down and financial turbulence intensifies, developing countries face years of hardship. The combined impact of higher interest rates, elevated energy and food prices, and reduced fiscal support will further strain household spending and business investment. Consequently, global inequalities are likely to widen, and the cost-of-living crisis in developing countries will deepen.