If the fiscal and monetary policies dominating in some advanced nations are not swiftly changed, the world is on the verge of a worldwide recession and protracted stagnation, according to the United Nations Conference on Trade and Development (UNCTAD).
In its most recent study, UNCTAD sounded the alarm, saying that the global recession brought on by policy could be worse than the global financial crisis of 2007 to 2009.
The organization warned that unnecessarily tightening monetary policy and a lack of proper financial support could further expose developing countries to cascading crises.
UNCTAD claims that because of supply-side shocks, declining consumer and investor confidence, and the conflict in Ukraine, which has slowed down the world economy and sparked inflationary pressures, development prospects may be fragmented. All regions would be impacted, it continued, but alarm bells are ringing the loudest for developing nations, many of which are getting closer to defaulting on their debt.
“Losses and damage inside weak economies that lack the financial space to deal with disasters increase as climate stress increases. According to the analysis, global economic growth will fall to 2.5% in 2022 and 2.2% in 2023, leaving GDP below its pre-COVID epidemic average and costing the globe more nearly $17 trillion in lost output.
Despite this, leading central banks are reportedly drastically hiking interest rates, endangering growth and making things considerably more difficult for those who are severely indebted, according to UNCTAD.
According to the report, the slowdown in the world will further expose emerging nations to a series of financial, health, and environmental concerns.
The analysis indicates that low- and middle-income nations in Africa and Latin America may experience some of this year’s most severe slowdowns. UNCTAD warns of a potential global debt crisis, noting that 30% of developing market economies and 60% of low-income nations are in or very close to debt distress. The global slowdown is having a severe impact on nations who were already exhibiting signs of debt crisis prior to the pandemic.
UNCTAD said: “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 of reserves to defend their currencies this year almost double the amount of the International Monetary Fund’s recently allocated Special Drawing Rights to supplement their official reserves.”
It urged governments to raise public investment and implement price controls on energy, food, and other essential commodities; investors to direct more capital into renewable energy sources; and the international community to give the UN-mediated Grain Initiative additional assistance.
The head of UNCTAD, Rebeca Grynspan, commented on the findings, saying: “There is still time to move back from the edge of recession.”
The UN organization is requesting that international financial institutions urgently increase liquidity and extend debt relief for developing nations. It is also urging the IMF to permit fairer use of “Special Drawing Rights” and urging nations to prioritize a multilateral legal framework on debt restructuring.
“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. UNCTAD is calling on advanced economies to avoid austerity measures and international organisations to reform the multi-lateral architecture to give developing countries a fairer say,” the UN body said.
