The war in Ukraine will slow global economic growth and could lead to recession in developing countries
The UN Conference on Trade and Development (UNCTAD) on Thursday cut its forecast for global growth in 2022 by 1% to 2.6%.
The director of UNCTAD's Division on Globalisation and Development Strategies, Richard Kozul-Wright, said that in September last year they had anticipated that the world economy would grow by about 3.6%.
"Of course, the main factor contributing to this adjustment is the war in Ukraine," Kozul-Wright told reporters in Geneva.
In the face of soaring inflation and a huge trillion-dollar debt burden for developing countries, the UN agency decried inadequate financial measures to help these nations withstand exchange rate volatility, rising interest rates and soaring food and fuel prices.
According to the agency, large-scale multilateral fiscal reform - possibly of the magnitude and ambition of the US Marshall Plan for the reconstruction of Western Europe after World War II - is urgently needed to improve the financial liquidity of developing countries and prevent their economic collapse.
In this sense, UNCTAD appealed to the International Monetary Fund (IMF) and the World Bank to step in.
"There is a rapidly worsening outlook for the global economy in 2022. After two years of crisis with the COVID-19 pandemic, the average growth rate of the world economy will be 2.6%, down from 5.5% last year and below projections made in the last quarter of 2021," the UNCTAD secretary-general stressed.
Rebeca Grynspan called for "emergency action by the IMF and the World Bank", alluding to the activation of rapid financing instruments that the Monetary Fund can provide to help countries with balance of payments problems.
"Conditions are deteriorating for everyone," she warned, citing the climate crisis and successive droughts in the Horn of Africa, the COVID-19 pandemic and the war in Ukraine as factors affecting the global economy.
Even relatively wealthy countries have sought help from the international system to stay afloat, she said.
"Pakistan turned to the IMF late last year. Sri Lanka has now turned to the IMF to set up a programme. Egypt, which was already in a programme, has come back to renegotiate. These are not less developed countries, they are middle-income countries that are under serious economic and, in some cases, political pressure as a result of the shocks they are facing right now," Kozul-Wright emphasised.
But it is the poorest and most import-dependent countries that will be hardest hit by the global economic slowdown and could suffer a recession, UNCTAD insisted.
"Developing countries bear the brunt because of the steep rise in food, energy and fertiliser prices, and the financial pressure they are already under," Grynspan said.
While all regions will be negatively affected by this crisis, major commodity exporters are likely to benefit from higher prices, said Kozul-Wright, who, however, estimated that the European Union's economic performance will decline quite significantly this year, as will parts of Central and South Asia.
UNCTAD's recommendations highlight the need for global financial reform to give developing countries the economic space for reasonable growth to service crippling debts.
"Debt service in 2020 for developing countries, excluding China, was already $1 trillion. That is the kind of financial pressure developing countries are under," Kozul-Wright said.
"We know and have argued in the past that the G20 initiatives, especially the Debt Service Suspension Initiative, are welcome. But it was clearly insufficient as it only provided about $11 billion to eligible countries," added.
