2023 global growth projected to drop to 2.1%: UNCTAD report

It assumes that the financial fallout from higher interest rates is contained to the bank runs and bailouts of the first quarter.

Annual growth across large parts of the global economy will fall below the performance registered before the pandemic and well below the decade of strong growth before the global financial crisis, it says.

UNCTAD estimates that interest rates hikes will cost developing countries more than $800 billion in foregone income over the coming years.

Developing countries are facing the crushing effect of soaring debt, interest rate hikes, high food prices and insufficient liquidity, an UNCTAD release said.

Many developing countries face a deepening development crisis as soaring debt levels and higher servicing costs squeeze productive investment in both the public and private sectors. A shortfall of international liquidity has already turned unforeseen shocks into a vicious financial cycle in some countries, UNCTAD noted in its report.

UNCTAD has found that 81 developing countries (excluding China) lost $241 billion in international reserves in 2022, an average decline of 7 per cent, with over 20 countries experiencing a drop of over 10 per cent and in many cases exhausting their recent addition of special drawing rights (SDRs).

Meanwhile, borrowing costs, measured through sovereign bond yields, increased from 5.3 per cent to 8.5 per cent for 68 emerging markets. Overall, external creditors' pressure on developing countries to reduce fiscal deficits is expected to increase.

UNCTAD highlights that debt distress will result in a development crisis and wider inequalities, with 39 countries paying more to their external public creditors than what they received in new loans, causing an adverse impact on public investments and social protection.

Over the last decade, debt servicing costs have consistently increased relative to public expenditure on essential services. The number of countries spending more on external public debt service than healthcare increased from 34 to 62 during this period.

UNCTAD says that even if financial conditions stabilize, the slowdown in economic growth in many developing countries combined with the end of the cheap money era points to future rounds of debt distress.

Hence, UNCTAD has called for a bold agenda to support developing countries by overhauling global debt architecture, ensuring greater liquidity and through more robust financial regulations.

Fibre2Fashion News Desk (DS)