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The French response to the Corona Crisis: semi-presidentialism par excellence

GDI Briefing - 19. Januar 2038 - 4:14

This blog post analyses the response of the French government to the Coronavirus pandemic. The piece highlights how the semi-presidential system in France facilitates centralized decisions to manage the crisis. From a political-institutional perspective, it is considered that there were no major challenges to the use of unilateral powers by the Executive to address the health crisis, although the de-confinement phase and socio-economic consequences opens the possibility for more conflictual and opposing reactions. At first, approvals of the president and prime minister raised, but the strict confinement and the reopening measures can be challenging in one of the European countries with the highest number of deaths, where massive street protests, incarnated by the Yellow vests movement, have recently shaken the political scene.

Kategorien: english

Shock and Awe in the UNFSS

DEVELOPMENT - vor 21 Stunden 37 Minuten
Abstract

The unholy alliance between the UN and the World Economic Forum in staging a Food Systems Summit is the culmination of deepening public partnerships with the corporate food sector on an international scale. This article examines how the WEF has exploited this relationship to position its private constituency to oversee global food market governance at the expense of multilateral principles, and against China’s expanding state-centered model of international self-reliance.

Disparity to Parity to Solidarity: Balancing the Scales of International Agricultural Policy for Justice and Viability

DEVELOPMENT - vor 21 Stunden 37 Minuten
Abstract

Resetting international agricultural governance requires a collective commitment to changing the economic rules of production. This article reports on the challenging questions raised by the Disparity to Parity project, led by a group of farmer-activists, farmer organizations, and scholar-activists in the US. How can parity policies be updated, expanded, redesigned with and for Black, Indigenous, immigrant, cooperative, female and gender diverse farmers and would-be farmers? How does the parity movement join in global solidarity to reset the international agricultural economic and trade rules to reverse the globalization of agriculture that dumps surplus and undermines food sovereignty?

Towards Building Comprehensive Legal Frameworks for Corporate Accountability in Food Governance

DEVELOPMENT - vor 21 Stunden 37 Minuten
Abstract

Given the failures of the UN Food Systems Summit and Food and Agriculture Organization (FAO) to tackle the problems related to the corporate capture of food governance, this article calls for developing comprehensive legal frameworks for corporate accountability in food governance. In doing so, the authors identify key regulatory elements that need to be taken into account in food governance discussions. Their recommendations are borrowed from the guidance developed in the context of the negotiations for an International Legally Binding Instrument on TNCs and other Businesses with Respect to Human Rights, as well as in the WHO Framework Convention on Tobacco Control, the WHO Framework of Engagement with Non-State Actors, and the WHO Financial Regulations and Financial Rules.

Rethinking economies #115

Tax Justice Network - 21. Oktober 2021 - 22:03

In this episode Taxcast host Naomi Fowler discusses degrowth, rethinking economies and value in part 2 of her conversation with economic anthropologist Jason Hickel.

Plus: the Pandora Papers - 3 things the latest offshore leak is showing us.

Why some countries rejected the OECD's 15% minimum global corporate tax deal

And, as COP26 begins in Scotland, it's the 'last chance saloon' to take meaningful action to minimise ecological disaster - can politicians learn from nations leading the way with good policies on energy?

A transcript is available here: https://taxjustice.net/wp-content/uploads/2021/10/The-Taxcast-Oct-21.pdf 

You can find out more about Jason Hickel's books, Less Is More and The Divide here: https://www.jasonhickel.org/ 

Our website is here with more Taxcasts: https://www.thetaxcast.com

Kategorien: english

Sub-Saharan Africa’s debt problem: Mapping the pandemic’s effect and the way forward

Brookings - 21. Oktober 2021 - 17:49

By Chris Heitzig, Aloysius Uche Ordu, Lemma Senbet

Background

The COVID-19 pandemic has, thus far, spared Africa from the high number of cases and deaths seen in other regions in the world (Figure 1). As of April 2021, sub-Saharan Africa accounted for just 3 percent of the world’s cases and 4 percent of its deaths. Some experts attribute the relatively low case counts in sub-Saharan Africa to the region’s extremely young population or, importantly, the swift and preemptive lockdowns that many countries implemented in March 2020. While these lockdowns have likely saved lives, they have also left significant scars on the fiscal position of sub-Saharan Africa and the market conditions it faces. Dwindling revenues following the fall in global trade met a wave of unemployment among a population that lacks widespread access to safety nets and health infrastructure.

Figure 1. Population, COVID cases, and COVID deaths, sub-Saharan Africa vs. world

Source: Our World in Data, 2021. Data taken on September 1, 2021.

In response, African governments have, by and large, borrowed to finance stimulus packages to support at-risk groups, struggling businesses, creative education solutions, and health-related infrastructure. International and regional financial institutions, such as the World Bank, International Monetary Fund (IMF), African Development Bank (AfDB), and European Union (EU) countries (both bilaterally and multilaterally) have responded through debt relief measures and restructurings. The fiscal and monetary responses of sub-Saharan Africa and various financial institutions will have important consequences for indebtedness, debt servicing capacity, and debt sustainability more broadly.

Debt was an increasing problem across all income groups of African countries prior to COVID-19, and the pandemic has only exacerbated the problem. In fact, African countries had been borrowing heavily in the global financial markets in recent years—a trend that has created both new opportunities and new challenges. Rising debt levels have corresponded with rising debt service cost, but countries have not necessarily improved their ability to finance such obligations. Indeed, failure to meet debt service obligations will have devastating impacts, including downgrading of credit ratings (and, hence, future higher costs), heightened pressure on foreign exchange reserves and domestic currency depreciation, and the real possibility of being rationed out of the market—and negative reputational consequences.

This paper utilizes new data to study the impact of the COVID-19 pandemic on debt sustainability and vulnerability in sub-Saharan Africa and sheds light on the channels through which these impacts have taken place. We find that debt levels have risen substantially in sub-Saharan Africa since the onset of the COVID-19 pandemic. We utilize IMF projections as a comparison to analyze the impacts on the pandemic on debt levels and how they covary with key determinants of growth and fiscal space.

In particular, sub-Saharan Africa experienced a 4.5 percent increase in “pandemic debt”—the debt taken on above and beyond projections due to the COVID-19 crisis. HIPC countries in particular saw large increases in pandemic debt, with levels 8.5 percent higher than projected. Non-HIPC countries took on mostly planned debt and borrowed from both private and official (that is, bilateral or multilateral) credit markets alike. HIPC countries, on the other hand, were largely shut out of private credit markets and instead relied on official credit to fund increases in (largely unplanned) debt. We also find that the domestic bond market played a more important role in private borrowing than it has in recent years and that eurobond issuance was relatively scarce. Countries that rely on metal exports issued less pandemic debt than did those that rely on oil, thanks to the strong growth and relative stability of metal prices during the pandemic.

Despite taking on substantial pandemic debt, HIPC countries experienced less extreme drops in GDP compared to their non-HIPC counterparts, underscoring the need for HIPC countries to accelerate financial sector development and enhance public-sector financial management, including mitigating financial leakages, curbing illicit follows, and galvanizing domestic resource mobilization. Looking forward, this paper argues that both sub-Saharan Africa’s recovery and debt sustainability depend on two factors: the success of the African Continental Free Trade Agreement (AfCFTA) and obtaining the participation of private partners in debt restructuring. Economic recovery, in this regard, will affect the millions of informal workers that have lost their jobs at the hands of the pandemic as well as revenue levels that coincide to some degree with the workers’ eventual participation in the formal economy.

Key findings
  1. Debt levels in 2020 were 4.5 percent higher in sub-Saharan Africa than projections. The increase was particularly acute in HIPC countries, whose debt had mirrored non-HIPC countries the decade prior.
  2. Non-HIPC countries and especially upper-middle-income countries retained access to credit markets and used a mixture of private and official creditors to finance increases in debt (which were largely in line with projections).
  3. HIPC countries were largely shut out of private debt markets and instead relied on unplanned borrowing from official creditors.
  4. Domestic bond markets played a relatively more important role in private borrowing. Eurobond issuance dropped sharply.
  5. Some resource-rich countries saw sharp increases in bond yields despite having comparatively low yields pre-pandemic.
  6. Metal prices showed more stability and higher growth than oil prices during the pandemic. Consequently, top metal exporters took on less debt than top oil-exporting countries.
  7. Many sectors, especially manufacturing, witnessed “formalization” of employment during the pandemic.
Policy recommendations
  • Obtain full participation of all creditors, including private ones, in debt restructuring
  • Accelerate financial sector development
  • Enhance public financial management and internal resource mobilization
  • Mitigate financial leakages and illicit flows
  • Harness and accelerate opportunities afforded by AfCFTA
  • Design incentive-compatible and state-contingent contracts
  • Revisit existing institutional mechanisms for debt resolution

This paper is organized as follows. Section 2 begins by taking brief stock of the region’s debt landscape prior to the advent of COVID-19, before illustrating how the debt burden has changed during the pandemic. It also reviews key reasons why indebtedness has risen, including stimulus packages, current account deficits, and borrowing costs. Section 3 examines key economic channels along which the pandemic shock unfolded. Section 4 considers the magnitude of revenue loss and the vulnerability of the informal workers during the pandemic. Section 5 discusses attempts to rectify the unexpected, unsustainable increases in debt (or “pandemic debt”) and explores important considerations of which effective policies must take account. Section 6 recommends a number of policies and the way forward.

Download the full report

      
Kategorien: english

$667 million funding call to help Afghans through economic crisis

UN ECOSOC - 21. Oktober 2021 - 16:59
Afghanistan’s economy is imploding, with all but three per cent of households expected to fall below the poverty line in coming months, the UN said on Thursday.
Kategorien: english

Saudi Arabia and Newcastle United — Is “Sportswashing” The New Frontier of Public Diplomacy?

UN Dispatch - 21. Oktober 2021 - 16:48

In early October, a group lead by the investment arm of the sovereign wealth fund of Saudi Arabia purchased Newcastle United, the English Premier League soccer team.

Saudi Arabia’s Public Investment Funds is chaired by Saudi Arabia’s de-facto ruler, crown prince Mohammad Bin Salman. The purchase, therefore, caused a great deal of speculation that it was motivated by a desire to burnish the image of the Saudi ruler.  What is not speculation is that overnight Newcastle United became the richest soccer team in the world.

On the line with me to explain the significance of Saudi Arabia’s purchase of Newscastle United is Alex Ward, national security reporter at Politico and anchor of the National Security Daily newsletter.

We kick off discussing the impact of this purchase for the team itself.  As Alex Ward explains, success on the soccer field is very much central to Saudi Arabia’s broader PR goals.

 

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The post Saudi Arabia and Newcastle United — Is “Sportswashing” The New Frontier of Public Diplomacy? appeared first on UN Dispatch.

Kategorien: english

SDRs for COVID-19 relief: The good, the challenging, and the uncertain

Brookings - 21. Oktober 2021 - 13:31

By Ali Zafar, Jan Muench, Aloysius Uche Ordu

In August 2020, as a response to the pernicious impact of the COVID-19 pandemic on the global economy and on the finances of member states, the International Monetary Fund (IMF) decided to issue $650 billion of special drawing rights (SDRs). Conceptually, SDRs are a form of unconditional financing for addressing urgent liquidity challenges.

SDRs were created in the late 1960s as a precautionary mechanism to address potential sovereign liquidity shortfalls in the context of the rigid monetary order of fixed exchange rates of the Bretton Woods system. SDRs were designed to serve as a low-cost reserve asset that could be sold by a government via the IMF acting as intermediary to another government and thereby converted into currency using an exchange rate pegged to a basket representing five of the world’s leading currencies. Currently, these five currencies are the U.S. dollar, the Chinese renminbi, the euro, the Japanese yen, and the British pound sterling. SDRs are not technically the IMF’s currency but a claim on reserves. To that effect, SDRs are not money per se but rather a means to establish a line of credit with a sovereign lender (government) acting as buyer of SDRs. Besides paying a low rate of interest on SDR use, countries benefit from the absence of refinancing risks imposed by conventional maturities. For foreign currency-strapped economies, many emerging markets, and lower-income economies in Africa, SDRs can, therefore, provide the immediate means to pay for vaccines and/or other health care investments.

The Good

As the pandemic has wreaked havoc on both developed and developing country finances, the IMF moved to address the liquidity shortfalls in the global economic system and help provide financing for many countries. Given the pronounced contraction in output and employment, this injection of liquidity represents a lifeline to countries with scarce reserves. SDRs buy time as they can be used to finance critical expenditure, build reserves, and service debts, although they do not provide a long-term remedy for underlying problems. In operational terms, the IMF SDR department facilitates the exchange of existing SDRs between countries and reduces any transaction costs.

The Challenging

The formula for SDR allocation is based on a country’s quota within the IMF, which reflects its relative position in the world economy (Table 1). The problem with the SDR allocation is that richer countries receive more than poorer countries. In fact, barely 3 percent of the $650 billion total in pandemic response went to low-income countries, and only 30 percent went to middle-income emerging markets. In other words, the countries that are most in need of financial relief and support are not the top beneficiaries of the SDRs. Instead, countries like the U.S., which can print its money, and China, which has several trillions in reserves, benefit the most.

This disconnect occurs because SDRs were created to address potential liquidity shortfalls in an entirely different monetary system rather than in the present context. As a result, experts are proposing reforms to this system. In October 2021, the IMF began building support among members for a proposed “Resilience and Sustainability Trust”—a funding mechanism that would allow richer countries to channel their IMF reserves to poorer countries in need. By lending at cheaper rates and with longer maturities than the IMF’s traditional lending terms, and with funding targeted toward areas such as climate and pandemic preparedness, the trust could help channel funds toward development projects. Another potentially good option is for the IMF to work closely with the regional development banks, such as the African Development Bank, to channel some of the SDR financing through the regional bank’s lending program. Given the regional banks’ proximity to the client, this approach could help to ensure greater links to the development strategies and programs of member states.

Table 1. Select country SDR quotas and SDR allocations Country Quota (%) Allocation (USD billions) USA 17.43 79.5 China 6.4 29.2 France 4.23 19.3 United Kingdom 4.23 19.3 Nigeria 0.52 2.4 South Africa 0.64 2.9 Cote d’Ivoire 0.14 0.62 Kenya 0.11 0.52 Mali 0.04 0.18

Source: IMF.

The Uncertain

SDRs were not originally designed as open-ended cash transfers. For one, SDRs are not included in the assessment of debt sustainability. While the SDRs can provide liquidity, there is no mechanism for ensuring that money is used productively and reaches those in need. Conversion of SDRs into foreign currency happens on a sovereign level with few strings attached, meaning multilateral leaders cannot ensure that the SDRs are properly used for COVID-19 relief. There is also no discrimination between progressive or dictatorial countries in terms of SDR allocation. Some of the SDRs can end up being used by developing-country governments to pay debt service to public and private creditors in the absence of debt restructuring. For instance, SDRs can be used to boost reserves in Nigeria and South Africa, to pay back debt in the case of Argentina or, in the case of the CFA franc zone, especially in countries like Equatorial Guinea and Republic of Congo, to postpone necessary governance and exchange rate reforms. In this context, it would be good to have oversight by international experts to ensure SDRs are used for developmental impact. However, even assuming effective governance frameworks, for low-income African countries, the flows of SDRs may be too low to have a strong impact anyway.

Conclusion

Unless we believe limited liquidity shortfalls of a more-or-less temporary nature are the only consequence of current macroeconomic and public health stresses, policymakers should not just fall back on SDRs to avoid the more complex questions typically raised in the context of conventional debt or more permanent financial transfers. Beyond a limited (and welcome boost), liquidity SDRs appear to be an imperfect substitute for a financing package able to serve both specific pandemic relief and long-term development objectives. In sum, SDRs represent a second-best solution to a complex problem, with clear advantages and clear shortcomings.

      
Kategorien: english

Youth@Work series kicks-off – Highlights from the first webinar on the Green Economy

INCLUDE Platform - 21. Oktober 2021 - 12:12

This week INCLUDE, with the support of Canada’s International Development Research Centre (IDRC) and the International Labour Organization (ILO), launched the webinar series Youth@Work. We kicked off the series with the first session on Youth@Work in the Green Economy. Researchers, practitioners and policy makers came together to exchange their views on the road towards a green economy transition and the employment potential this could offer to youth in Africa. This article presents the key insights that emerged from the online event. 

Martha Melesse, senior program officer with IDRC’s Globalization, Growth, and Poverty program, opened the session with some striking statistics: 70% of the African population is below the age of 30, making Africa the youngest continent on earth and it is estimated that by 2040 Africa will have the largest youth work force in the world, surpassing both China and India. Addressing issues of youth employment, will be therefore be key in shaping the future of the continent. This is according to Melesse especially important in light of the COVID-19 recovery, to address the economic fallout and socioeconomic challenges caused by the pandemic.

The green economy as a way forward

It is against this backdrop that the concept of the ‘green economy’ emerges as a potential solution to the multiplex challenges of climate change, poverty alleviation and inequality reduction, while also enabling African countries to create decent jobs and achieve an inclusive economic transformation. The ‘greening’ of economies is a process where resources are reallocated from unsustainable production systems to sustainable and regenerative ones that also reduce vulnerabilities and promote human well-being. This transformation is anticipated to create new ‘green jobs’, and for this reason is widely heralded as a solution to the youth employment crisis in Africa. As such, the main question on everyone’s mind during this first webinar was: How can the green economy provide sustainable jobs for youth in Africa?

With the UN Climate Change Conference of the Parties (COP26) in Glasgow just around the corner this discussion could not be more timely, Melesse reminded us; “We need to make sure that youth employment is on the agenda and that youth voices are heard.

Taking a youth perspective?

Dominic Glover, Fellow of the Institute of Development Studies at the University of Sussex and co-author of the evidence synthesis paper on youth employment and the Green Economy, agreed with Melesse that youth should be at the centre of inclusive development policies. However, when it comes to facilitating a green economic transition, he stated that it is important to also consider to what extent certain issues are specifically related to youth and which are more general challenges. “There is often a lot of emphasis on issues related to youth as if the problem is with young people, while actually the problem is with the economy.” And although youth are unique in some aspects, Glover states, they are not in others. When it comes to facilitating the transition to a Green Economy you have to ask yourself: if a young person is facing challenges in finding a job, is that because they are ‘youth’ or is it because of something else, such as failing regulations, a remoteness from financial services or issues related to poverty or gender? Consequently, according to Glover, in order to stimulate the transition to a green economy for sustainable jobs, we need to consider interventions that address structural obstacles, functional problems and cross-cutting issues, not just those that target youth specifically.

To facilitate this a number of important steps need to be taken, which include the development of theories of change to inform the design, implementation and impact evaluation of green jobs and youth jobs strategies and interventions and promoting policy coherence to underpin green growth, by integrating youth employment and green jobs priorities into broader national economic development plans (the full list of recommendations can be found in the evidence synthesis paper). Another important element is to create a better evidence base on green jobs and youth employment in the green economic sector to find out what does and does not work.

Industries without smokestacks: lessons from South Africa 

One of the most recent research endeavours into this topic is the study conducted by the Development Policy Research Unit (DPRU) in South Africa that wanted to find out if industries without smokestacks can provide job opportunities for youth in Africa. Lead researcher, Robert Hill, who is a junior research analyst at the DPRU and an assistant lecturer in the School of Economics at the University of Cape Town, presented evidence from his research into this question in South Africa.

As Hill shared, the unemployment rate in South Africa is extremely high and with 59% the youth employment rate is nearly double the aggregate unemployment rate in the country. The Covid pandemic has exacerbated this even further with a total job loss of 114 million jobs in Africa according to the ILO. To mitigate these challenges, new jobs need to be created and industries without smokestacks (IWOSS) could be the answer. These industries, which include tourism, horticulture, agro-processing and transit trade, can offer viable alternatives to manufacturing when it comes to large scale job creation and are as such a promising avenue to explore further. It also has the potential to immediately absorb a large share of youth as there doesn’t seem to be a shortage of youth at any skills levels required for IWOSS.

However, important to note, and an aspect that was also pointed out during the discussion in the webinar, is that industries without smokestacks are not necessarily green jobs. Tourism, for example, can pose significant environmental challenges and the financial sector might invest in industries with smokestacks, thereby creating negative environmental impact. Therefore, when moving to a green economy, Hill acknowledged, we need a concerted effort to make these industries green and prioritise green IWOSS jobs above other, non-sustainable ones.

Skilling, reskilling and upskilling 

This point was elaborated upon by Mette Grangaard Lund who works as a Technical Officer at the Green Jobs Unit at the ILO. In her presentation, Lund stressed the need for a holistic approach when it comes to the Green Economy and think about how we can both take important steps in ‘greening’ existing businesses that are not typically green, and create jobs that are ‘green at the core’.

This will be especially important in Africa according to Lund, since many African countries are still highly dependent on natural resources, which makes their economies extremely vulnerable to climate change. As such, climate action or climate inaction is closely linked to the employment prospects of youth in Africa. Transitioning to a green economy is therefore essential when it comes to investing in youth employment. However, as Lund recognises, a green transformation of the economy will also destroy and displace existing jobs, even as it creates new ones. A point that is also brought forward by the authors of the ESP on the Green Economy. This is bound to be disruptive, even if the eventual outcomes are generally positive. Therefore, according to Lund a strong emphasis needs to be placed on ensuring that it is a ‘just transition’, promoting decent work and ensuring social protection where needed, so that no one is left behind.

A key aspect of a just transition is investing in skills development, which includes the upskilling and reskilling of youth to bridge the skills gap they might have when it comes to meeting the demand of the new green economy. Secondly, a just transition also needs to focus on the demand side of the job market; creating new jobs that are sustainable and inclusive. An important aspect of this, according to Lund, is to stimulate enterprise development and entrepreneurship skills to encourage youth to set up new green and social businesses.

Social enterprises as the engine of growth

Bart van der Meer, who represented the Sustainable Economic Development Department (DDE) of the Dutch Ministry of Foreign Affairs at the webinar, agreed wholeheartedly with Lund that enterprise development should be at the core of a youth employment policy strategy, stating that “Micro, small and medium-sized enterprises are the main engine of growth, economic development and employment and we should strengthen these and the environment they are operating in.” To illustrate this point, Van der Meer shared the example of a business that the Ministry of Foreign Affairs has funded through its innovation fund, which is Searious business, a social enterprise that aims to reduce the amount of single-use plastic discarded into nature in Morocco. Searious Business works together with Moroccan supermarket chains and informal workers who collect waste to collect plastic bottles in supermarkets and as such reduce plastic leakage into the environment. According to Van der Meer, this example shows how investing in innovations in the green economy can be an important accelerator for youth employment in Africa. 

The final speaker at the webinar was Joshua Amponsem, an environmental and climate activist who focuses on the role of youth in climate change adaptation, disaster risk reduction, and resilience building. Amponsem agrees with Van der Meer and Lund that MSME’s have high potential when it comes to creating jobs for youth: “Local social enterprises are where the enthusiasm is and the potential for growth; they understand the context and know what is needed. We need to invest in these businesses to leverage this potential.” An important aspect, according to Amponsem is to work with informal workers in the transition to a green economy. The informal sector makes up the lion’s share of the labour market in many African countries, but are often not reached by development interventions because they are not well organised. In order to really facilitate a sustainable transition, development agencies should, according to Amponsem “not see the informal sector as a beneficiary of an intervention, but need to work with informal workers as close allies”.

Adding to this and drawing the discussion to a conclusion, Chiamaka Nwachukwu, moderator of the webinar and ex-Programme Coordinator of the Youth Charter at the African Union Office, highlighted the need to ensure that a transition to a green economy is a just transition and that we make sure that green jobs are also decent, and pay particular attention to the most vulnerable segments of society such as women and people with disabilities, only then can we truly harness the potential of the Green Economy for youth employment in Africa.

Youth @ Work Webinar Series This webinar is part of a series to promote evidence-based policy-making, experts’ knowledge sharing and good practices on youth employment in Africa. Visit this page for more information and register now for the next webinar on YOUTH@WORK in the Rural Economy next Tuesday, October 26. Missed the event? Click here to find the recording of the webinar on Youtube or watch it below.

Het bericht Youth@Work series kicks-off – Highlights from the first webinar on the Green Economy verscheen eerst op INCLUDE Platform.

Kategorien: english

Navigating the debt legacy of the pandemic

Brookings - 20. Oktober 2021 - 21:44

By M. Ayhan Kose, Franziska Ohnsorge, Naotaka Sugawara

COVID-19 has left a legacy of record-high debt and shifted the trade-offs between benefits and costs of accumulating government debt. How do these trade-offs manifest themselves? And how does the current debt boom compare with previous episodes? We argue that the debt legacy of the pandemic is exceptional by historical standards in a way that warrants prompt policy action.

 The pandemic’s debt legacy

 The recent fiscal deterioration in advanced economies and emerging market and developing economies (EMDEs) stands apart over the past half-century. Output collapses and government spending to keep economies afloat triggered a massive increase in global debt levels. In 2020, global government debt increased by 13 percentage points of GDP to a new record of 97 percent of GDP. In advanced economies, it was up by 16 percentage points to 120 percent of GDP and, in EMDEs, by 9 percentage points to 63 percent of GDP.

Even before the pandemic, the global economy experienced an unprecedented wave of debt accumulation that started in 2010—the largest, fastest, and most broad-based of four global debt waves since 1970. In EMDEs, the accompanying widening of fiscal deficits and the speed at which both government and private debt rose far exceeded changes in previous waves of debt.

This rapid increase in debt is a major cause for concern because of the risks associated with high debt. Previous waves of debt ended in widespread financial crises, such as the Latin American debt crises in the 1980s and the East Asian financial crisis in the late 1990s.

Trade-offs of debt accumulation

The pandemic has vividly illustrated the benefits of accumulating debt in the role of large fiscal support programs during the 2020 global recession. They were a critical policy response to avoid worse economic outcomes. They supported household incomes, kept businesses afloat, and helped stabilize financial markets.

However, as the initial recovery from the pandemic gives way to a new normal, the balance of benefits and costs of debt accumulation is increasingly tilting toward costs. The costs of debt include interest payments, the possibility of debt distress, constraints that debt may impose on policy space and effectiveness, and the possible crowding out of private sector investment (Figure 1).

As the global economy strengthens, financial conditions are likely to tighten, whether because central banks begin to normalize monetary policy or because investors expect higher inflation. In EMDEs, this may be accompanied by depreciations that put pressure on debt sustainability in those countries with a large share of foreign currency-denominated debt. Even where foreign currency-denominated debt is limited, rising borrowing cost may erode debt sustainability, especially if growth fails to rebound strongly. Record-high EMDE debt makes countries vulnerable to financial market stress. Meanwhile, a recovery in domestic demand and closing output gaps may make additional fiscal stimulus unhelpful.

Ongoing debt booms

And many EMDEs are now particularly vulnerable to financial stress. More than two-thirds of EMDEs are currently experiencing debt booms. Their median government debt boom currently underway is similar in magnitude to, but has already lasted three years longer than, the median past debt boom (Figure 2). Current booms have been accompanied by a considerably larger fiscal deterioration than past booms (Figure 3). And booms currently underway have also been associated with slower output, investment, and consumption growth than in previous episodes.

Historically, about half of such booms in EMDEs were associated with financial crises either during the boom itself or in the two years after the end of the boom. Government debt booms associated with financial crises featured significantly weaker macroeconomic outcomes than booms without crises.

Low-income countries (LICs) are particularly at risk of debt distress, both because of high debt levels and because of a fragile composition of debt. In LICs, government debt rose by 7 percentage points, to 66 percent of GDP, in 2020. The composition of LIC debt has become increasingly non-concessional over the past decade as they have accessed capital markets and borrowed from non-Paris Club creditors. Since the end of April 2021, about one-half of LICs have been classified as being at high risk of debt distress or already in debt distress.

What to do?

National policymakers, as well as the global community, need to act urgently to address debt-related risks. Unfortunately, there is no easy policy fix that EMDE policymakers can implement to overcome these risks. For these economies, containing the potential risks associated with accumulating debt may mean resorting to alternatives for borrowing, including better spending and revenue policies, in an improved institutional environment. Spending can be shifted toward areas that lay the foundation for future growth, including education and health spending as well as climate-smart investment to strengthen economic resilience. Government revenue bases can be broadened by removing special exemptions and strengthening tax administrations. Business climates and institutions can be strengthened to support vibrant private sector growth that can yield productivity gains and expand the revenue base.

The global community can play a significant role in supporting a return to fiscal sustainability in EMDEs. In the near term, this includes supporting the vaccine rollout in these economies, where it has lagged and has weighed on the recovery. In the medium term, this includes fostering an open and rules-based trade and investment climate that has been a critical growth engine for many economies in the past. For some EMDEs, and LICs in particular, additional support may be needed to return debt to manageable levels, including debt relief.

      
Kategorien: english

Only ‘real equality’ can end vicious cycle of poverty

UN #SDG News - 20. Oktober 2021 - 19:36
Although poverty and privilege “continue to reproduce themselves in vicious cycles”, it is possible to break the chain and shift the paradigm, an independent UN human rights expert told the General Assembly on Wednesday. 
Kategorien: english

Only ‘real equality’ can end vicious cycle of poverty

UN ECOSOC - 20. Oktober 2021 - 19:36
Although poverty and privilege “continue to reproduce themselves in vicious cycles”, it is possible to break the chain and shift the paradigm, an independent UN human rights expert told the General Assembly on Wednesday. 
Kategorien: english

Rush for new profits posing threat to human rights, UN experts warn 

UN ECOSOC - 20. Oktober 2021 - 19:17
The finance industry’s demand for new sources of capital worldwide to satisfy investors, is having a serious negative impact on the enjoyment of human rights, a group of UN-appointed independent rights experts have warned. 
Kategorien: english

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