Debt-ridden developing countries face years of economic pain brought on by a global growth slowdown, high interest rates and reduced investment, the UN Conference on Trade and Development (UNCTAD) warned.

 

In a new report, UNCTAD projects that annual growth across large parts of the global economy will be below pre-pandemic levels in 2023.

 

High interest rates combined with soaring debt levels will add to the “crushing” effect on developing countries over the coming years, to the tune of at least $800 billion.

 

The UN body says that this will “further deepen the cost-of-living crisis that their citizens are currently facing and magnify inequalities worldwide”.

 

According to UNCTAD, “interest rates hikes will cost developing countries more than $800 billion in foregone income over the coming years”, as debt servicing costs rise at the expense of investment and public spending.

 

In 2022, borrowing costs, measured through sovereign bond yields, increased from 5.3 per cent to 8.5 per cent for 68 emerging markets.

 

The report says that over the last decade, debt servicing costs have consistently outpaced public expenditure on essential services, and that “the number of countries spending more on external public debt service than healthcare increased from 34 to 62 during this period”.

 

Last year, UN Deputy Secretary-General Amina Mohammed had warned against this dynamic, calling it “a trade-off between investments in debt and investments in people”.

 

Public investment in developing countries will continue to suffer as countries pay more to their external creditors than they receive in new loans. This was the case of 39 countries in 2022, with potentially devastating consequences for development, social protection and the broader fight against inequalities, stated UNCTAD.

 

Meanwhile, international liquidity is drying up for developing economies. The report found that 81 developing countries (excluding China) lost $241 billion in international reserves in 2022, or seven per cent on average.

 

UNCTAD says that more than 20 countries experienced a drop of over 10 percent, “in many cases exhausting their recent addition of Special Drawing Rights”.

 

Special Drawing Rights (SDRs) are an international reserve asset created by the International Monetary Fund (IMF) to supplement the official foreign exchange reserves of its member countries and help provide them with liquidity.

 

The largest-ever allocation of SDRs, worth $650 billion, was carried out by the IMF in August 2021 to support countries through the economic crisis due to Covid-19.

 

Amid the liquidity shortfall, UNCTAD has warned that 500 million people living in 37 countries are likely to continue suffering for years to come from the consequences of a global financial system unable to respond at the scale and speed needed to face the systemic shocks affecting the developing world.