Looming debt crisis, deepening inequality, lack of investment in climate mitigation and adaptation: UN Trade and Development calls for structural reform

Globally, in the first quarter of 2024, economic growth is slowing; private investment is stagnant, income inequality is increasing; and consumption expenditure is increasingly sustained by private borrowing.

The UN Trade and Development Report Update (April, 2024) is a ‘must read’ for understanding the structure and direction of the global economy.

Higher interest rates in the major capitalist economies have had a significant impact across the global economy. Consequences for developing countries include: higher debt servicing costs, currency depreciation (due to increase flow of funds to high interest economies), and upwards pressure on local interest rates (needed to stem this financial outflow).

Increased interest rates are predicated on the assumption that inflation is caused by excess demand – “too many dollars, pounds and euros chasing too few goods and services”. This policy logic ignores the supply side bottle-necks following the pandemic, increasing market concentration (monopoly pricing power), and commodity price hikes associated with the Ukraine war. Central banks blame wage increases for continuing inflation but in fact wages remain well below the pre-pandemic trend.

Pasted in below are three particularly striking extracts.

“Overall, the deterioration of key determinants of debt dynamics underlines the structural nature of debt challenges faced by developing countries. Lack of progress on multilateral solutions in addressing the different components of this complex problem – including low economic growth, profit shifting and base erosion, commodity dependence, high climate vulnerability, significant financing costs, the absence of global financial safety net and effective multilateral sovereign debt resolution mechanisms – further exacerbates the burdens faced by populations in developing countries in the form of larger fiscal adjustments and puts at risk the achievement of the Sustainable Development Goals.”

“The broad downward trajectory of international food prices since 2023 has, in fact, done little to alleviate pressure on the persistently high food prices faced by many consumers – particularly among the most vulnerable populations in developing countries – as weakening local currencies have continued to inflate the domestic prices of these basic goods. Consequently, food insecurity persists as an acute concern across developing countries – especially among vulnerable ones such as least developed countries – affecting low-income groups in particular (GCRG, 2022). Similarly, if the recently observed upward trajectory in global rice prices were to persist, it would exacerbate food insecurity, as rice is a staple food for more than half of the world’s population (Fukagawa and Ziska, 2019), notably vulnerable population groups in Africa and Asia. Under the current scenario, it is estimated that close to 600 million people will be chronically undernourished in 2030 (FAO, 2023).”

“The startling asymmetry between the profitability of specific stages of these global value chains, the challenges faced by smallholder producers in developing countries and the mounting food insecurity concerns all point to the need for greater policy action, including improved regulation of the commodity trading industry and the consideration of a permanent windfall profit tax. Additionally, support policies for smallholder producers should be combined with other complementary measures to ensure that those vulnerable segments of the population who rely on stable and accessible commodity prices to meet their basic needs are not adversely affected.”

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