Challenging times ahead for developing countries
Global growth is expected to decelerate markedly from 5.5% in 2021 to 4.1% in 2022 and 3.2% in 2023 and the after-effects of the pandemic will affect emerging economies most, according to the World Bank.
In his foreword to the June 2022 Global Economic Prospects Report, World Bank president, David Malpass, said progress toward recovery for developing countries had been hampered by three “daunting challenges”.
Firstly, macroeconomic imbalances had reached unprecedented proportions, partly due to record high levels of government spending, deficits and debt in several advanced economies with their central banks absorbing unprecedented amounts of long-term assets – resulting in inequitable allocation of capital.
The inequality was further exacerbated by surging COVID-19 spending and debt in developing countries, Malpass said.
“With fiscal and monetary policy in uncharted territory, the implications for exchange rates, inflation, debt sustainability, and economic growth are unlikely to be favourable for developing countries,” he said.
Malpass also said income inequality was getting worse across and within countries.
“As government’s fiscal space has narrowed, many households in developing countries have suffered severe employment and earning losses – with women, the unskilled, and informal workers hit the hardest,” Malpass said.
Malpass’ final note was that COVID-19 was causing “exceptional uncertainty” in markets, with volatile commodity prices and extreme weather events aggravating food insecurity and public health.
“New variants of the virus can put even highly vaccinated countries under pressure and threaten to wreak havoc in those with low vaccination rates—which are the poorest and most vulnerable of all,” he said.
“Supply bottlenecks have hit developing countries hard—these countries are often the last in the global supply line, outbid by countries with greater financial resources and larger orders.”
Mari Pangestu, World Bank’s managing director for development policy and partnerships said the choices made by policymakers in the next few years will determine the course of the next decade.
“The immediate priority should be to ensure that vaccines are deployed more widely and equitably so the pandemic can be brought under control,” she said.
“But tackling reversals in development progress such as rising inequality will require sustained support. In a time of high debt, global cooperation will be essential to help expand the financial resources of developing economies so they can achieve green, resilient, and inclusive development.”
AUTHOR
Liam Cormican
Recommended for you
Lonsec and SQM Research have highlighted manager selection as a crucial risk for financial advisers when it comes to private market investments, particularly due to the clear performance dispersion.
Macquarie Asset Management has indicated its desire to commit the fast-growing wealth business in Australia by divesting part of its public investment business to Japanese investment bank Nomura.
Australia’s “sophisticated” financial services industry is a magnet for offshore fund managers, according to a global firm.
The latest Morningstar asset manager survey believes ETF providers are likely to retain the market share they have gained from active managers.
