UNCTAD: Policy errors could lead to a worse recession than the 2007 crisis.

Ibekimi Oriamaja Reports

The United Nations Conference on Trade and Development (UNCTAD) has warned against policy mistakes that could lead to a worse recession than the one experienced in 2007.

As a result, it urged the implementation of appropriate policies to guard against recession.

In a report released on Monday, UNCTAD stated that if fiscal and monetary policies in some advanced economies are not quickly changed, the world will experience global recession and prolonged stagnation.

“There is still time to back away from the brink of recession.”

“This is a matter of policy choices and political will,” said UNCTAD Secretary-General Rebeca Grynspan.

The current course of action, she claims, is harming the most vulnerable.

According to UNCTAD, the policy-induced global recession could be worse than the global financial crisis that lasted from 2007 to 2009.

The agency also warned that excessive monetary tightening and insufficient financial support could further expose developing world economies to a chain reaction of crises.

According to the report Development Prospects in a Fragmented World, supply-side shocks, waning consumer and investor confidence, and the war in Ukraine have caused a global slowdown and triggered inflationary pressures.

It also warned that, while all regions will be affected, developing countries, many of which are on the verge of debt default, will bear the brunt of the consequences.

According to the report, as climate stress increased, so would losses and damage within vulnerable economies that lacked fiscal space to deal with disasters.

According to the report, global economic growth will slow to 2.5 percent in 2022 and 2.2% in 2023, resulting in a global slowdown that could push GDP below its pre-COVID-19 pandemic trend and cost the world more than $17 trillion in lost productivity.

It emphasized that, in the midst of this, leading central banks are sharply raising interest rates, threatening to stifle growth and making life much more difficult for the heavily indebted.

According to UNCTAD, the global slowdown will expose developing countries to a cascade of debt, health, and climate crises.

According to the report, middle-income Latin American countries and low-income African countries could experience some of the sharpest slowdowns in 2022.

UNCTAD warned of a possible global debt crisis, citing 60% of low-income countries and 30% of emerging market economies as being in or near debt distress.

“Countries that were in debt prior to the pandemic are being hit especially hard by the global slowdown.”

“And climate shocks appear to be underappreciated by the G20 major economies and other international financial bodies, raising the risk of economic instability in indebted developing countries.”

“Developing countries have already spent an estimated 379 billion dollars in reserves this year to defend their currencies,” according to UNCTAD.

It explained that the expenditure is nearly double the amount of Special Drawing Rights (SDRs) recently allocated by the International Monetary Fund (IMF) to supplement their official reserves.

As a result, the UN body is urging international financial institutions to provide increased liquidity and debt relief to developing countries as soon as possible.

It also requests that the IMF allow for more equitable use of Special Drawing Rights and that countries prioritize a multilateral legal framework for debt restructuring.

Meanwhile, interest rate increases in advanced economies are disproportionately affecting the most vulnerable.

This year, 90 developing countries’ currencies have weakened against the dollar, with more than a third of them losing more than 10%.

And, as the cost of necessities such as food and energy has risen as a result of the Ukraine war, a stronger dollar exacerbates the situation by raising import prices in developing countries.

Moving forward, UNCTAD is urging advanced economies to avoid austerity measures and international organizations to reform the multilateral architecture in order to give developing countries a more equal voice.

Rising commodity prices, particularly food and energy, have posed significant challenges for households worldwide for much of the last two years.

And, while rising fertiliser prices threaten to harm many small farmers around the world, commodity markets have been volatile for a decade.

Although the UN-brokered Black Sea Grain Initiative has significantly contributed to lower global food prices, the report claims that speculators and betting frenzy in futures contracts, commodity swaps, and exchange traded funds (ETFs) have received insufficient attention.

Furthermore, large multinational corporations with significant market power appear to have taken undue advantage of the current situation in order to increase profits at the expense of some of the world’s poorest.

As a result, UNCTAD has urged governments to increase public spending and use price controls in energy, food, and other critical areas, investors to invest more in renewables, and the international community to lend more support to the UN-brokered Grain Initiative.