UNCTAD’s Trade and Development Report (TDR) 2021, released on September 15, says this year will see the global economy bounce back thanks to the continuation of radical policy interventions begun in 2020 and a successful vaccine roll-out in advanced economies. Global growth will hit 5.3 per cent, its fastest rate in nearly five decades.
According to the press release from the United Nations Conference on Trade and Development (UNCTAD), the recovery, however, is uneven across geographical, income and sectoral lines. Within advanced economies, the rentier class has experienced an explosion in wealth, while low-earners struggle.
Constraints on fiscal space, lack of monetary autonomy and access to vaccines are holding many developing economies back, widening the gulf with advanced economies and threatening to usher in another lost decade.
“These widening gaps, both domestic and international, are a reminder that underlying conditions, if left in place, will make resilience and growth luxuries enjoyed by fewer and fewer privileged people,” said Rebeca Grynspan, the secretary-general of UNCTAD.
UNCTAD’s proposals are drawn from the lessons of the pandemic and include concerted debt relief and even cancellation in some cases; a reassessment of the role of fiscal policy in the global economy; greater policy coordination across systemically important economies; and bold support for developing countries in vaccine deployment.
In 2022, UNCTAD expects global growth to slow to 3.6 per cent, leaving world income still 3.7 per cent below where its pre-pandemic trend would have put it — an expected cumulative income loss of about $13 trillion in 2020-22. Timid policy or, even worse, backsliding, could pull growth down further, says the release.
Across the world, but particularly in developing regions, the damage from the COVID-19 crisis has been greater than that from the global financial crisis (GFC), most notably in Africa and South Asia.
Even barring significant setbacks, global output will only resume its 2016-19 trend by 2030. This fact conceals the deeper problem that the pre-COVID-19 income growth trend was itself unsatisfactory; average annual global growth in the decade after the GFC was the slowest since 1945.
Four main lessons from the pandemic
TDR 2021 draws four main lessons from the pandemic. First, any talk of financial resilience in developing countries would be premature since in many cases investment flows remain volatile and the burden of indebtedness intolerable. Although spiralling sovereign debt crises were avoided in 2020, developing countries’ external debt sustainability deteriorated further.
UNCTAD calls for concerted debt relief and in some cases outright cancellation in order to reduce the debt overhang in developing countries and avoid another lost decade for development.
Second, the pandemic has seen an emergent consensus around the need for significant public sector intervention, but there is less agreement on what this will involve beyond countercyclical measures. There is a risk that expansionary fiscal measures will be regarded only as fire-fighting tools, while, in fact, they are critical instruments of long-term development.
UNCTAD calls for the political space created by the pandemic to be used to re-assess the role of fiscal policy in the global economy, as well as the practices which have widened inequalities.
Third, delivering the necessary support to build back better will require much greater policy coordination across systemically important economies; reforms to the international economic architecture that were promised after the 2008-09 crisis but were quickly abandoned in the face of resistance from the rentier class.
Fourth, the reluctance of other advanced economies to follow the US lead on the vaccine waiver is not only a worrying sign of disjointed obduracy in the North; it is a particularly costly one for already financially constrained economies. On one recent estimate, the cumulative cost of delayed vaccination will, by 2025, amount to $2.3 trillion with the developing world shouldering the bulk of that cost.
Renewed international support is needed for developing countries, many of which face a spiralling health crisis, even as they struggle with a growing burden of debt and face the prospects of a lost decade.