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Global economic situation aggravates development crisis in poor countries

Global economic situation aggravates development crisis in poor countries

The global economic situation is aggravating the development crisis in poor countries, which suffer the “crushing effects” from rising debt, rising interest rates, rising food prices and insufficient liquidity, the UN economic analysis body said today.

The United Nations Agency for Trade and Development (UNCTAD) said today that it has further lowered its growth forecast for the global economy in 2023, which now stands at 2.1%, well below the 2.8% estimated by the Fund. International Monetary and its own forecasts from six months ago (2.2%).

This reduced forecast, moreover, will depend on stopping the increase in interest rates.

In a very concrete way, the UNCTAD study shows the impact of measures such as the successive increases in interest rates by the world’s main central banks -after several years of negative rates, which considerably lowered the cost of access to money -, as a measure to curb the sharp rise in inflation.

According to the agency, these increases will cost developing countries US$ 800,000 million in lost income in the coming years.

Likewise, it is pointed out that 81 developing countries (excluding China) lost US$ 241,000 million in international reserves last year, which means a reduction of 7%; and some twenty countries experienced a decrease of more than 10% in their reserves.

On the other hand, borrowing costs (measured through sovereign bond yields) increased from 5.3% to 8.5% for 68 emerging markets.

This will lead, according to forecasts, to external creditors increasing pressure on developing countries to reduce their fiscal deficits.

All of this will have a negative impact on debt levels.”and the result will be a development crisis and greater inequalities”.

A direct consequence -according to UNCTAD- is that 39 countries will pay their external public creditors more money than they have received in new loans, which will have an adverse impact on public investment and social protection.

Another interesting piece of information is that in the last decade, the countries that spend more on paying off their external public debt than on health care have gone from 34 to 62.

In conclusion, the UN organization maintains that even if financial conditions stabilize, a slow rate of economic growth added to the end of the era of cheap money will worsen the problem of over-indebtedness.

To address this problem, which affects the most vulnerable countries, UNCTAD calls for the establishment of a multilateral debt workout mechanism, a registry of validated data on debt transactions for both lenders and borrowers, and improved analysis of debt sustainability.

These are issues that he asks the International Monetary Fund and the World Bank to address in their upcoming meetings.

Source: EFE

Source: Gestion

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