The overall poverty level in the world has seen material decline
over past three decades as highly populated countries like China, India, and
Bangladesh pulled millions of people out of abysmal poverty conditions; even
though, this period has also seen sharp rise in economic inequalities also.
The pace of poverty reduction has reduced since global financial
crisis, as the flow of development aid from developed economies to the poor
countries saw a marked decline; commodities dominated economies suffered due to
persistent deflationary pressures; EM currencies weakened; and abundantly
available credit at near zero interest rates helped the large global
corporations and investors to increase their wealth disproportionately.
The global economic shut down induced by the outbreak of deadly
COVID-19 virus is threatening to reverse the process of poverty alleviation.
Millions of people who had been barely out of poverty conditions are facing the
prospects of slipping back into the deep abyss. The fiscally constraint
governments, anemic economic activity and feeble businesses would find it tough
to support these people.
The key question to examine therefore is, If the global growth
continues to remain low, how the poor and developing economies will bridge the
development gap with developed countries and come out of poverty? And if this
gap widens, what would it mean for the world order?
As per the World Bank, "Poverty projections suggest that
the social and economic impacts of the crisis are likely to be quite
significant. Estimates based on growth projections from the June 2020 Global Economic Prospects report show that,
when compared with pre-crisis forecasts, COVID-19 could push 71 million people
into extreme poverty in 2020 under the baseline scenario and 100 million under
the downside scenario. As a result, the global extreme poverty rate would
increase from 8.23% in 2019 to 8.82% under the baseline scenario or 9.18% under
the downside scenario, representing the first increase in global extreme
poverty since 1998, effectively wiping out progress made since 2017."
The report further emphasizes, "The number of people living
under the international poverty lines for lower and upper middle-income
countries – $3.20/day and $5.50/day in 2011 PPP, respectively – is also
projected to increase significantly, signaling that social and economic impacts
will be widely felt." Besides, "A large share of the new extreme poor
will be concentrated in countries that are already struggling with high poverty
rates and numbers of poor. Almost half of the projected new poor will be
in South Asia, and more than a third in Sub-Saharan Africa."
As per another report of World Bank (Global Waves of Debt -
Causes and Consequences), "...wave of debt began in 2010 and debt has
reached $55 trillion in 2018, making it the largest, broadest and fastest
growing of the four. While debt financing can help meet urgent development
needs such as basic infrastructure, much of the current debt wave is taking
riskier forms. Low-income countries are increasingly borrowing from creditors
outside the traditional Paris Club lenders, notably from China. Some of these lenders
impose non-disclosure clauses and collateral requirements that obscure the
scale and nature of debt loads. There are concerns that governments are not as
effective as they need to be in investing the loans in physical and human
capital. In fact, in many developing countries, public investment has been
falling even as debt burdens rise.
The debt build-up also warrants close analysis because of slower
growth during the current wave. In comparison with conditions prior to the
2007-2009 crisis, emerging and developing economies have been growing more
slowly even though debt has been growing faster. Slower growth has meant weaker
development outcomes and slower poverty reduction."
"The latest debt surge in emerging and developing economies
has been striking: in just eight years, total debt climbed to an all-time high
of roughly 170 percent of GDP. That marks a 54-percentage point of GDP increase
since 2010—the fastest gain since at least 1970. The bulk of this debt increase
was incurred by China (equivalent to more than $20 trillion). The rest of the
increase was broad based—involving government as well as private debt—and
observable in virtually every region of the world.
The study shows that simultaneous buildups in public and private
debt have historically been associated with financial crises that resulted in
particularly xviii prolonged declines in per capita income and investment.
Emerging and developing economies already are more vulnerable on a variety of
fronts than they were ahead of the last crisis: 75 percent of them now have
budget deficits, their foreign currencydenominated corporate debt is
significantly higher, and their current account deficits are four times as
large as they were in 2007. Under these circumstances, a sudden rise in risk premiums
could precipitate a financial crisis, as has happened many times in the past.
Clearly, it’s time for course corrections."
...to continue on Tuesday
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