Debt Vulnerabilities in Low-income Countries Rise Sharply

Diep Nguyen

14:00 10/01/2019

BizLIVE - The median debt-to-GDP ratio of low-income countries has climbed, and the composition of debt has shifted toward more expensive market-based sources of financing.

Debt Vulnerabilities in Low-income Countries Rise Sharply
The informal sector accounts for about 70 percent of employment and 30 percent of GDP in emerging market and developing economies. 
Since it is associated with lower productivity and tax revenues and greater poverty and inequality, this is symptomatic of opportunities lost. Reducing tax and regulatory burdens, improving access to finance, offering better education and public services, and strengthening public revenue frameworks could level the playing field between formal and informal sectors.
Debt vulnerabilities in low-income countries are rising. While borrowing has enabled many countries to tackle important development needs, the median debt-to-GDP ratio of low-income countries has climbed, and the composition of debt has shifted toward more expensive market-based sources of financing. 
These economies should focus on mobilizing domestic resources, strengthening debt and investment management practices and building more resilient macro-fiscal frameworks.
Sustaining historically low and stable inflation is not guaranteed in emerging market and developing economies. Cyclical pressures that have depressed inflation over the past decade are gradually dissipating. The long-term factors that have helped reduce inflation over the past five decades – global trade and financial integration, widespread adoption of robust monetary policy frameworks – may lose momentum or reverse. Maintaining low global inflation may become as much of a challenge as achieving it.
Policies aimed at softening the blow of global food price swings can have unintended consequences if implemented by many governments in uncoordinated fashion. 
Government interventions can provide short-term relief, but widespread actions are likely to exacerbate food price spikes, with heaviest impact on the poor. 
For example, trade policies introduced during the 2010-11 food price spike may have accounted for more than one-quarter of the increase in the world price of wheat and maize. The 2010-11 food price spike tipped 8.3 million people (almost 1 percent of the world’s poor) into poverty.

DIEP NGUYEN

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