High-level segment of the Trade and Development Board, seventy-second executive session
20 October 2022
Ms. Mia Mottley, Prime Minister of Barbados
Ms. Amina Mohammed, Deputy Secretary General of the UN
Ms. Sigrid Kaag, Deputy Prime Minister of the Netherlands
H.E. Ambassador Hasans, the President of the TDB
Distinguished Delegates,
Dear Colleagues,
Dear Friends,
It is my great honor to host such an important gathering of people.
I want to thank our panelists, Prime Minister, DSG, Deputy Prime Minister for making the time to come.
Let me, in the name of our all colleagues here at UNCTAD, tell you how happy we are to have you here. Please feel welcome. UNCTAD is our common home.
Time is short so allow me to cut to the chase.
In this high-level segment, we will be discussing some critical issues to the world economy today, in the context of an extremely complex and challenging environment, marked by a global rise in the cost of living, unrelenting climate change, a pandemic that is still not over, and rapidly deteriorating financial conditions.
Last week, the Annual Meetings of the IMF and the World Bank were defined by an overwhelmingly gloomy outlook.
Ministers from all around the world complained that fiscal space is shrinking, food and energy prices are rising, interest rates are drying up capital, debts are under huge distress, and people are suffering, and their patience is running out.
Our recent Trade and Development Report gives credence to this sense of gloom – we expect global growth to fall to 2.2 percent next year (in fact, below what the IMF is forecasting, at 2.7 percent), with great risks to the downside. Further, we calculate that over $380 billion have left the foreign reserves of developing countries (almost twice what they received in Special Drawing Rights last year), and that, due to this year’s interest rate rises in many countries and they will suffer about 360 billion more in foregone income.
By the way, these UNCTAD calculations, the 360 billion foregone income is based on the Federal Reserve’s own models, which suggest that for every one percent rate rise in interest rates, GDP in global south declines by 0,8 percent, after three years. So, the 360 billion I have just mentioned refers to the interest rate rises that have already taken place this year – this number is therefore most likely an underestimate, as a further 0.75 to 1.25 rise is expected before the end of the year. When this happens, the total negative effect to developing countries will be near, or beyond, the half a trillion-dollar mark.
In all, liquidity in the Global South is evaporating at rates we have not seen since the 80s.
Money is going the wrong way, at the wrong time. Developing countries need resources to shelter their vulnerable households from the cost-of-living crisis, through targeted and sustained social protection programs. Efforts on domestic resource mobilization like windfall taxes or control of illicit financial flows are example of things that are important too, but without support from international finance institutions, they will not be enough.
Through our work in the UN Global Crisis Response Group, chaired by the Deputy Secretary-General Amina Mohammed, we have been monitoring this situation very closely since the beginning. And Amina, correct me if I’m wrong, but none of what is happening today has taken us by surprise – this is exactly what we said would happen, if not enough policy action was taken at the right time.
This reminds us of the last defining characteristic of the times we face. These cascading crises are political – both in terms of domestic politics, and in terms of geopolitics. When the costs of living rise, social unrest and political instability rises too – this has been proven again and again in history.
But this crisis is also geopolitical. We are at a time of great fragmentation, where consensus is increasingly hard to find.
For example, despite the gloomy outlook at the Annual Meetings, no substantial progress was made in the key areas of – climate change, Special Drawing Rights, Multilateral Development Banks mobilization – despite important efforts of the IMF to operationalize the Resilience and Sustainability Trust, and to open a Food Shock Emergency window, both welcome developments.
We especially welcome the fact that Barbados will be one of the very countries to have a Resilience and Sustainability program with the Trust Fund, but we think that the RST Trust Fund is still very underfunded, because the SDRs are not being rechanneled at the scale needed. From a total 400 billion SDRs sitting unused, only about 80 billion have been committed. Furthermore, we still don’t know what the extent of the new food shock window, which is in any case no substitute to the full replenishment of the main emergency lending windows of the IMF and the World Bank.
Lastly, the conversations around debt during the Annual Meetings remain stuck, despite wide agreement from all parties that the common framework this needs to be enhanced.
This lack of action is a result of fragmentation, of a politics of the blame-game as opposed to the politics of collective responsibility and finding solutions.
The issue is therefore one of political will. The institutions are there. The resources are there. The vehicles to channel the resources are also there. What is needed is the leadership to recognize that much more must be done with what we already have at hand.
But there is reason for hope. The two UN-backed Istanbul Agreements we signed in July with Turkiye, Ukraine and the Russian Federation, has opened a grain corridor through which almost 8 million metric tons of food have flowed back into world markets. These initiatives show that diplomacy is still possible, even in the most challenging circumstances, even in the middle of a war zone.
As a result, the FAO Food Price Index has fallen for seven months in a row, a very important development that has allowed us to avoid over a hundred million people from falling into poverty. However, most currencies in the world have depreciated against the dollar because of rising interest rates, and this means that domestic prices for food are still increasing, even if international prices are declining. This shows that, as S-G Guterres says, “there will be no answer to the food crisis without an answer to the finance crisis in developing countries”.
In any case, the Istanbul agreements are an example of a supply-side solution to our inflation problem. We need more of these, including in energy, and in fertilizers, which are key to ensuring farmers can plant enough harvests to feed the world next year. Without trade and supply-solutions to inflation, a narrow-focus on monetary policy will only bring down inflation by producing a recession.
Your Excellencies,
Ladies and Gentlemen,
Dear friends,
I am afraid that I have already done the easy part, which is setting the stage, and putting on top of the table the issues that we face. The hard part is what our panelists will now have to do, which is to propose solutions in the current context. But if anyone is up to that task is this, these three women’s champions, we have with us.
