World economy into recessionApprox Read Time: 5 minutes
- According to the latest United Nations trade report, the world economy will go into recession due to the coronavirus pandemic, with the exception of India and China.
- The United Nations Conference on Trade and Development (UNCTAD), the UN trade and development body, has released its latest report titled “The Covid-19 Shock to Developing Countries”.
- As per the report, the world economy will go into recession this year with a predicted loss of trillions of dollars of global income due to the coronavirus pandemic.
- UNCTAD noted that the speed at which the economic shockwaves from the pandemic has hit developing countries is dramatic, even in comparison to the 2008 global financial crisis.
Concern for developing countries:
- The Covid-19 related economic recession spells serious trouble for developing countries with the likely exception of India and China.
- This means two-thirds of the world’s population living in developing countries are facing unprecedented economic damage from the Covid-19 crisis.
- In two months since the virus began spreading beyond China, developing countries have taken an enormous hit in terms of:
- Capital outflows
- Growing bond spreads
- Currency depreciations
- Lost export earnings, including from falling commodity prices and declining tourist revenues
- As the developing countries lack the monetary, fiscal and administrative capacity to respond to this crisis, the consequences of a combined health pandemic and a global recession could be catastrophic for them and halt their progress towards the Sustainable Development Goals (SDGs).
The report calls for help to developing nations:
- To counter this, the UN is calling for a USD 2.5 trillion rescue package for these nations.
- If G20 leaders are to stick to their commitment of ‘a global response in the spirit of solidarity’, there must be commensurate action for the six billion people living outside the core G20 economies.
UNCTAD’s four-pronged strategy:
- UNCTAD proposes a four-pronged strategy that could begin to translate expressions of international solidarity into concrete action.
- This includes:
- A USD 1 trillion liquidity injection for those being left behind through reallocating existing special drawing rights (SDRs) at the IMF.
- A debt jubilee for distressed economies – One trillion dollars of debts owed by developing countries should be cancelled this year, overseen by an independently created body.
- A 500 billion dollars Marshall Plan for a health recovery funded from some of the missing official development assistance (ODA) long promised but not delivered by development partners.
- Capital controls should be given their legitimate place in any policy regime to curtail the surge in capital outflows, to reduce illiquidity driven by sell-offs in developing country markets and to arrest declines in currency and asset prices.
- UNCTAD was established by the United Nations General Assembly in 1964, as a permanent intergovernmental body.
- With a permanent secretariat in Geneva, the UNCTAD reports to the UN General Assembly and United Nations Economic and Social Council.
- The creation of UNCTAD was based on concerns of developing countries over the international market, multi-national corporations, and great disparity between developed nations and developing nations.
- It was established to provide a forum where the developing countries could discuss the problems relating to their economic development.
- The primary objective of UNCTAD is to formulate policies relating to all aspects of development including trade, aid, transport, finance and technology.