The UN Conference on Trade and Development’s (UNCTAD) 2020 report warns that a bold, targeted fiscal expansion, led by the advanced economies, is the “only way to build a fair and resilient economic recovery from COVID-19” and put the world on a path towards delivering the 2030 Agenda for Sustainable Development. The report calls for a big public investment push with effective international coordination and support, arguing that such a strategy could double the global growth rate over the next decade while also improving distribution of income and debt sustainability.

The publication titled, ‘Trade and Development Report 2020: From Global Pandemic to Prosperity for All: Avoiding Another Lost Decade,’ finds that the global economy will contract by over 4%, trade will shrink by approximately one-fifth, foreign direct investment will contract up to 40%, and remittances will decrease by over USD 100 billion in 2020. As a result, between 90 million and 120 million people will be “pushed into extreme poverty in the developing world” and close to 300 million people will face food insecurity. The report warns that some regions will be hit harder than others: Latin America is likely to be among those hardest hit, with a drop in output of 7.6% in 2020, with sharp declines in Argentina and Mexico; in contrast, growth in East Asia will remain positive, with China expected to grow at 1.3%.

To avoid a “lost decade,” the report argues that the world needs to tackle conditions that threatened the health of the global economy before the pandemic hit. These pre-existing conditions include hyper-inequality, unsustainable levels of debt, wage stagnation, and weak investment and insufficient formal sector jobs in the developing world. The report argues that policy choices must go beyond calls to leave no one behind and ensure choices that promote a more inclusive recovery. Sustained financial expansions can be managed in developed economies without inflationary impact if policies focus on productive investment in greening technologies and on leveraging technological progress to provide universal public services and support social inclusion. Rather than retreat into austerity, the report recommends collective support to sustain and coordinate state-led fiscal expansion around the world.

For smaller and open developing economies, the international community will need to provide financial assistance to preserve and expand domestic fiscal space. The report states, however, that the initiative by the Group of 20 (G20) and the Paris Club to suspend bilateral debt service repayments for select vulnerable developing countries has only been taken up by approximately half of the eligible countries so far, resulting in about USD 14 billion of temporary debt repayment relief for 2020. This amount compares to between USD 2 trillion and USD 2.3 trillion for high-income developing countries’ redemption schedules for public external debt in 2020-2021.

The report recommends a set of ambitious multilateral measures to transform the global crisis into a global recovery. These include:

• Expansion of the use of Special Drawing Rights (SDRs) to support developing countries’ fiscal spaces and national development strategies;
• A Marshall Plan for Health Recovery funded through increased official development assistance (ODA) commitments, enhanced multilateral financing mechanisms and international tax reform to boost the health emergency response to COVID-19 in developing countries as well as to boost recovery and build resilience (the report proposes dispersing the money as grants with room for zero interest loans);
• An international Public Credit Rating Agency to provide expert-based ratings of creditworthiness of companies and sovereigns and to promote global public goods and competition; and
• A Global Debt Authority to build a repository of institutional memory on sovereign debt restricting. The Authority, independent of institutional or private creditor or debtor interest, would oversee establishment of a publicly accessible registry of debt and loan data on sovereign debt restructurings to prevent repeat liquidity crises from turning into serial sovereign defaults. The report recommends that such an authority provide coherent frameworks and guidelines to ensure that long-term developmental needs, including achieving the 2030 Agenda, are systematically taken into account in debt sustainability assessments, among other responsibilities.

UNCTAD Secretary-General Mukhisa Kituyi said building a better world requires “smart actions now.” He stressed that “the lives of future generations, indeed of the planet itself, will depend on the choices we all take over the coming months.” [Publication: Trade and Development Report 2020] [Report Landing Page] [UNCTAD Press Release on Need for New Policy Mindset] [UNCTAD Press Release on Need for Public Spending] [UNCTAD Press Release on Inequality]