Conditions and prospects are so bad that two well-known cheerleaders for globalization have called on rich nations to take urgent action. The former deputy managing director of the International Monetary Fund (IMF) and former vice president of the World Bank, and Martin Wolf, an influential columnist for the Financial Times, have warned of the dire consequences of inaction.
By Jomo Kwame Sundaram
Deepening stagnation
After the tepid growth following the 2008 global financial crisis, Covid-19 disrupted supply chains around the world. Afterward, the recovery following the covid pandemic was disrupted by the wars in Ukraine and then Gaza.
Food and energy prices spiked briefly, largely due to market manipulation by opportunistic investors. Invoking rising prices as a pretext, the US Federal Reserve and the European Central Bank raised interest rates, deepening economic stagnation around the world.
Countries that had become heavily indebted during the previous decade, marked by non-traditional monetary policies, especially quantitative easing, which offered easy credit, now have to face increasingly unbearable debt charges, especially in the global South.
Previous modest progress in reducing poverty, now called extreme poverty and food insecurity, has slowed sharply, if not worsened. For many of the world’s poorest, progress has not only halted, but even reversed.
The World Bank now defines the poor as those with a daily income per person of less than $2.15 in 2017 prices. The poor are estimated to have gone from 1870 million (31% of the world’s population) in 1998 to 690 million (9%) in 2023.
The pace of poverty reduction has fallen sharply: global poverty is projected to fall by just over three percentage points over the decade 2013-2023, much less than the 14 percentage points of the decade before 2013.
The poorest, mainly in poor countries
The pace of poverty reduction has slowed particularly in the world’s poorest countries. Wolf defines these countries as those considered eligible for concessional loans from the soft lending arm of the World Bank Group, the International Development Association (IDA).
Seventy-five countries are currently considered eligible for IDA resources, 39 of them in Africa. Some, such as Bangladesh, Nigeria and Pakistan, are also eligible for more concessional loans from the financial markets and the Group’s International Bank for Reconstruction and Development.
In IDA-eligible countries, the number of people living in extreme poverty fell from 48% in 1998 to 26% in 2023. But this was only a decline of one percentage point over the period 2013-2023, down from 14 percentage points in the previous decade.
Extreme poverty has declined mainly in the better-off middle-income countries, with 497 million poor people in IDA-eligible countries. Of the world’s 691 million poor, 72% live in IDA-eligible countries, while the remaining 193 million live in other countries.
The proportion of the population living in extreme poverty in non-IDA-eligible countries fell from one-fifth in 1998 to 3% in 2023, declining by only four percentage points over the decade 2013-2023. With modest global growth, columnist Wolf predicts that this 3% share will be largely eliminated by 2030.
He therefore argues that extreme poverty can only end if attention and resources are focused on the world’s poorest countries, where poverty is most concentrated and deeply entrenched.
Unequal debt burden
Public debt is widespread but especially debilitating in countries where the poor are most concentrated. The World Bank’s latest International Debt Report notes that these countries rely too heavily on unreliable and costly financing.
The report acknowledges: “For the poorest countries, debt has become an almost crippling charge: 28 countries eligible for (IDA) loans are now at high risk of debt overhang. Eleven are in difficulties.
During 2012-2021, the share of external debt of IDA-eligible countries to private creditors rose from 11.2% to 28.0%. Debt service payments more than tripled from $26 billion in 2012 to $89 billion in 2022, and interest payments increased from $64 billion to $23.6 billion.
Meanwhile, the share of bondholders and other private lenders in total public debt fell from 37% in 2021 to 14% in 2022. As the US Federal Reserve raised interest rates sharply during the 2022-2023 biennium, investors dumped poor, high-risk debtors, lending much less to those most in need.
With this perfect storm, debt distress should come as no surprise. The International Debt Report 2023 revealed that more than half of IDA-eligible countries were at risk of such distress.
Distress for the poorest
Wolf argues that it is in the interest and obligation of rich countries to provide much more concessional finance to poor countries. But such financing has actually declined in recent decades, especially with the no end of the first Cold War more than three decades ago.
IDA is using its 20th replenishment, from July 2022 to June 2025, to provide concessional financing. The World Bank president has advocated a new, much larger replenishment, ostensibly to accelerate growth, reduce poverty and address other challenges in the poorest countries.
IDA-eligible countries include many of the world’s worst managed nations, often very fragile, vulnerable to crises and trapped in chronic poverty that is difficult to escape from. But their problems have become pretexts for withholding or withdrawing so-called concessional finance to those most in need.
Much more concessional finance and other resources are needed for poor nations to develop sustainably. But reducing sustainable development to simply eliminating poverty, today with the addition of climate action, will condemn the poorest developing countries to backwardness.
Global financial agreements have been crucial in undermining fair and sustainable development in poor countries. While it will be critical to enable these nations to overcome their current and impending predicaments, much more fundamental reforms must follow quickly.
Because the poorest developing countries are both weak and vulnerable, the necessary reforms do not appear on the horizon. Instead, the so-called “international community” continues to kick the can down the road instead of undertaking bold reforms in the short and medium term.
T: MF / ED: EG
Jomo Kwame Sundaram, contractionary economic trends since 2008 and ‘geopolitical’ conflicts subverting international cooperation have worsened world conditions, especially in the poorest countries, mainly in Africa, leaving their poor worse off.
