Wahyu Dwi Anggoro
“Near-term growth will remain weak, leaving many developing countries—especially the poorest—stuck in a trap: with paralyzing levels of debt and tenuous access to food for nearly one out of every three people. That would obstruct progress on many global priorities. Opportunities still exist to turn the tide. This report offers a clear way forward: it spells out the transformation that can be achieved if governments act now to accelerate investment and strengthen fiscal policy frameworks," the economist added.
To tackle climate change and achieve other key global development goals by 2030, developing countries will need to deliver a formidable increase in investment —about USD2.4 trillion per year. Without a comprehensive policy package, prospects for such an increase are not bright. Per capita investment growth in developing economies between 2023 and 2024 is expected to average only 3.7%, just over half the rate of the previous two decades.
The latest Global Economic Prospects also identifies what two-thirds of developing countries, commodity exporters specifically, can do to avoid boom-and-bust cycles. The report finds that governments in these countries often adopt fiscal policies that intensify booms and busts. When increases in commodity prices boost growth by one percentage point, for example, governments increase spending in ways that boost growth by an additional 0.2 percentage point. In general, in good times, fiscal policy tends to overheat the economy. In bad times it deepens the slump. This “procyclicality” is 30 percent stronger in commodity-exporting developing economies than it is in other developing economies. Fiscal policies also tend to be 40 percent more volatile in these economies than in other developing economies.
The instability associated with higher procyclicality and volatility of fiscal policy produces a chronic drag on the growth prospects of commodity-exporting developing economies. The drag can be reduced—by putting in place a fiscal framework that helps discipline government spending, by adopting flexible exchange-rate regimes, and by avoiding restrictions on the movement of international capital. On average, these policy measures could help commodity exporters in developing economies boost their per capita GDP growth by as much as one percentage point every four or five years. Countries can also benefit by building sovereign-wealth funds and other rainy-day funds that can be deployed quickly in an emergency. (WHY)
