The World Development Report 2022

Finance for an Equitable Recovery in the Context of the International Debt Crisis

Bibliographic Data

ID7744249
AuthorsRobert Hunter Wade (0009-0005-8584-8258, corresponding author)
Year2023
Volume54
Issue5
Pages1354-1373
Publication date2023-09-01
Peer ReviewedYes
Open AccessYes
TypeARTICLE
VenueDevelopment and Change (JOURNAL)
Journal identifiersISSN: 0012-155X • E-ISSN: 1467-7660
PublisherWiley (PUBLISHER • GB)
DOI10.1111/dech.12796
OpenAlexW4387220748
LanguageEN
Citations received3
References cited10

2022: Finance for an EquitableRecovery states, 'The COVID-19 pandemic is possibly the largest shock to the global economy in over a century ' (p.20).In 2020, the first year of the pandemic, the global economy shrank by 3 per cent; economic activity contracted in about 90 per cent of countries.This is a higher percentage of countries experiencing negative growth in per capita GDP than in any year since 1901, when the data started -a higher proportion even than during two World Wars, the Great Depression of the 1930s, the emerging markets debt crisis of the 1980s, and the 2007-10 North Atlantic financial crisis.Major economies administered the largest double dose of fiscal and monetary expansion in history, and major firms exploited the uncertainty of the pandemic to mark up their prices far above the cost of labour and non-labour inputs, making a combined demand-and sellers-inflation at the highest rate in decades.Central banks are now frantically trying to rein it in.Governments and private entities were forced to borrow even more than before in order to stay afloat as business activity ground to a halt; and they deferred payments on existing debt while borrowing more.In 2020, the average total debt burden (both public and private) of lowand middle-income countries leapt by 9 percentage points, compared with an annual increase of 1.9 per cent in the previous decade.In the same year, 51 countries, including 44 emerging economies, experienced a downgrade in their sovereign debt rating, making borrowing more expensive.Then came exogenous shock number two in the form of Russia's war on Ukraine which began in early 2022 and continues at the time of writing (mid-2023), creating upheaval in global markets for food, fuel and fertilizer.The dramatic shrinkage of supply of these essentials has caused high prices, hurting many developing countries dependent on imports of these basics even more deeply than they had already been hurt by the COVID-19 pandemic.The two shocks together compounded inflation and multiplied public and private debt.The IIF reported that government debt in 30 large low-and middleincome countries hit almost 65 per cent of GDP by the end of 2022 -an increase of 10 percentage points over pre-pandemic levels and the highest ever year-end total.From the start of 2020 to the end of 2022, the debt of more than 100 developing countries ballooned by almost US$ 2 trillion (excluding China), as social spending soared while incomes froze.These trends caused shock number three (this one endogenous), which, like shock two, also started in early 2022, as the US Federal Reserve and other central banks raised interest rates rapidly and synchronously to curb high inflation after decades of low inflation and low interest rates; monetary tightening in the past two years has been the fastest in the past four decades.Thanks to the deep integration of both developed and developing countries' into Western financial markets (with free capital mobility and flexible exchange rates strongly promoted by the IMF and World Bank), the rising interest rates in safe-haven US and other Western markets caused investors to pull capital from developing countries and the latters' currencies to

Business · Context (archaeology) · Debt · Debt crisis · Economics · Financial crisis · Financial system · Geography · Keynesian economics · Political science · Economic Issues in Ukraine · European Socioeconomic and Political Studies · Finance · Global Financial Crisis and Policies