Its contribution to developing countries’ debt increases to 139% of GDP in 2017 from 79% in 2008
The world can’t depend on the private sector to achieve the Sustainable Development Goals by 2030 owing to its high level of debt, according to the United Nations Conference on Trade and Development’s (UNCTAD) latest report.
The Trade and Development Report 2019 highlights how the sector’s contribution to developing countries debt rose to 139 per cent of the gross domestic product (GDP) in 2017 from 79 per cent in 2008, the year that saw a major financial crisis. The public sector debt constituted only 51 per cent of the GDP in 2017.
All this made the total debt developing countries were in to be 190 per cent of their GDP in 2017, the highest ever, found the report.
In high-income countries too the private sector debt accounted for 165 per cent of GDP in 2017, it added.
The global debt increased 13 times in less than four decades — $213 trillion in 2017 from $16 trillion in 1980, showed the UNCTAD report. In the same period, the private sector’s contribution rose almost 12 times — to $145 trillion from $12 trillion.
Since the 1980s, the world has seen de-regulation of finance and the private sector is being favoured through liberalisation under globalisation.
The private sector failed to adopt promotion of productive and inclusive growth. They have been heavily concentrated in speculative activities, channeled through shadow-banking practices. It only leads to deeper income inequalities, read the UNCTAD report.
Private players come up with products to create instability in markets, according to the report. They used huge public credits to purchase financial assets that were, in turn, used as collateral to further borrow money to purchase more financial assets. This fuelled speculative excess and promoted financial instability, which resulted in defaults and falling of asset prices, the report elaborated.
Developing and lower-income countries need huge investments to achieve the 2030 basic agenda like addressing poverty, nutrition, health and education goals, suggested the UNCTAD. Either developing countries will grow by 11.9 per cent per annum or the debt-to-GDP ratio will steeply rise from the current 47 per cent to 185 per cent to achieve the goals, said the report.
But none of this will be possible owing to the global economic slowdown that emerged in 2019 and may lead to recession in 2020.
This coupled with Germany showing signs of stagnation, Brexit affecting UK and US’s economy standing on weak grounds and slowdown hitting the Latin American countries does not give much hope.
The UNCTAD called for fundamentally rethinking “business as usual”. The UN trade body demanded that the world find a way to make debt work better for development.
The ‘New Deal’ during the great depression successfully tackled unemployment and low wages, the predatory nature of finance, infrastructures gaps and regional inequalities, recalled the report.
It suggested that there be a strategy on the lines of this one to achieve the 2030 goals. This approach will boost public investment with an eye to avert an environmental breakdown and promote wage-led growth in place of finance-led growth, recommended the report.
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