The United Nations Conference on Trade and Development (UNCTAD) released a report on Monday warning that the central bank’s monetary and fiscal policy is putting the world economy at risk.
He claimed that US interest rate hikes in particular will cut $360 billion in future income for developing countries.
A crisis in developing countries
According to the report, UNCTAD predicts a slowdown in global economic growth to 2.5% in 2022 and 2.2% in 2023. This will cost the planet $17 trillion, more than 20% of its income. Growth rates in developing economies will fall below 3%, which the organization describes as “insufficient for sustainable development”.
It also says interest rate hikes are “hitting the poor harder,” with 90 developing countries seeing their currencies weaken against the dollar by 2022. More than a third of those countries they weakened by more than 10% between January and July, with countries such as Argentina and Turkey weakening by 23% and 31% respectively.
“A stronger dollar worsens the situation, raising the price of imports in developing countries,” the report said. “The consequences are devastating for the world’s poor, especially in an era of stagnant wages for most workers.”
The British pound weakened substantially against the dollar last month, falling as low as $1.07 before recovering to $1.13 days later. Despite the low crypto market, even Bitcoin he acted better than most fiat currencies against the dollar during the third quarter.
Given the circumstances, UNCTAD warns that a widespread “debt crisis” in developing countries is a “real risk”. Debt service costs in several countries have risen well above 20% of government revenue, with Somalia at 96.8%.
The solution: reverse course
As a solution to potential financial crises, UNCTAD recommended that international financial institutions extend more debt and liquidity relief to developing countries. He also called on central banks in developing countries to “reverse course” and “avoid the temptation” to use even higher interest rates to curb rising prices. Advanced economies, he said, should “avoid austerity measures”.
“There is still time to pull back from the brink of recession,” said Rebeca Grynspan, Secretary General of UNCTAD. “This is a matter of political choices and political will. But the current course of action is hurting the most vulnerable, especially in developing countries, and risks plunging the world into a global recession.”
UNCTAD Director Richard Kozul-Wright also suggested that raising interest rates may not be the real solution to inflation. Instead, he suggested that policymakers use “more targeted measures,” such as “strategic price controls” and taxing windfall profits.
In July, the US recorded a second consecutive quarter of negative GDP growth, marking a technical recession in the eyes of many.
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