UNCTAD) warns that a bold, targeted fiscal expansion, led by the advanced economies, is the “only way to build a fair and resilient economic recovery from COVID-19” and put the world on a path towards delivering the 2030 Agenda for Sustainable Development - Photo by the UNCTAD Office

JAKARTA (TheInsiderStories) – The United Nation Conference on Trade and Development’s (UNCTAD) warns that a bold, targeted fiscal expansion, led by the advanced economies, is the “only way to build a fair and resilient economic recovery from COVID-19” and put the world on a path towards delivering the 2030 Agenda for Sustainable Development.

The report also calls for a big public investment push with effective international coordination and support, arguing that such a strategy could double the global growth rate over the next decade while also improving distribution of income and debt sustainability. It also finds that the global economy will contract by over 4 percent, trade will shrink by approximately one-fifth, foreign direct investment will contract up to 40 percent, and remittances will decrease by over US$100 billion in 2020.

As a result, between 90 million and 120 million people will be “pushed into extreme poverty in the developing world” and close to 300 million people will face food insecurity. The report warns that some regions will be hit harder than others. As an example, Latin America is likely to be among those hardest hit, with a drop in output of 7.6 percent in 2020, with sharp declines in Argentina and Mexico.

In contrast, growth in East Asia will remain positive, with China expected to grow at 1.3 percent. To avoid a “lost decade,” the report argues that the world needs to tackle conditions that threatened the health of the global economy before the pandemic hit.

These pre-existing conditions include hyper-inequality, unsustainable levels of debt, wage stagnation, and weak investment and insufficient formal sector jobs in the developing world. The report argues that policy choices must go beyond calls to leave no one behind and ensure choices that promote a more inclusive recovery.

Sustained financial expansions can be managed in developed economies without inflationary impact if policies focus on productive investment in greening technologies and on leveraging technological progress to provide universal public services and support social inclusion. Rather than retreat into austerity, the report recommends collective support to sustain and coordinate state-led fiscal expansion around the world.

For smaller and open developing economies, the international community will need to provide financial assistance to preserve and expand domestic fiscal space. The report states, however, that the initiative by the Group of 20 (G20) and the Paris Club to suspend bilateral debt service repayments for select vulnerable developing countries has only been taken up by approximately half of the eligible countries so far, resulting in about $14 billion of temporary debt repayment relief for 2020.

This amount compares to between $2 trillion and $2.3 trillion for high-income developing countries’ redemption schedules for public external debt in 2020 – 2021.  UNCTAD secretary-general, Mukhisa Kituyi, said building a better world requires “smart actions now.” He stressed that “the lives of future generations, indeed of the planet itself, will depend on the choices we all take over the coming months.”

Investment

Earlier, UNCTAD states that the pandemic has caused a “steep drop” in investment flows and has hit developing countries the hardest. The report finds that lockdown measures have slowed existing investment prospects and caused multinational enterprises to reassess new projects.

It projects that global foreign direct investment (FDI) will decrease up to 40 percent in 2020, bringing FDI below $1 trillion for the first time since 2005. FDI is expected to decrease 5-10 percent in 2021 and to begin to recover in 2022, led by global value chains, replenishment of capital stock, recovery of the global economy, and restructuring for resilience.

Kituyi stated the outlook is “highly uncertain” and depends on “the duration of the health crisis and on the effectiveness of the policies mitigating the pandemic’ economic effects.” He stressed that the transformation underway in international production will “impact developing countries over the coming decade” and requires a “major policy rethink.”

In Africa, investment flows are predicted to decline 25 – 45 percent in 2020, as a result of the pandemic and low commodity prices, especially for oil. In Asia, investment flows are predicted to decline 45 percent in 2020. The pandemic caused lockdown measures and factory stoppages that impacted factories’ production and supply chains in the region. In addition, decreasing corporate earnings and the economic slowdown have resulted in multinational enterprises postponing investment plans.

In Latin America, investment flows are expected to halve in this year. The pandemic has compounded structural weaknesses and political and social unrest, exacerbating foreign investment challenges and triggering a “deep recession.” These shocks are expected to have the most impact in the commodities, tourism, and transport sectors. In addition, Argentina, Brazil, Chile, Colombia, and Peru, which depend on FDI in extractive industries, will be hurt by low oil and commodity prices.

The Caribbean is expected to be “hit hard” by the collapse in tourism. The region is also predicted to be “strongly affected” by the global slowdown in demand, particularly in trade with China and the United States.

Edited by Editorial Staff, Email: theinsiderstories@gmail.com