Macroscope | As the global economy slows, spare a thought for the world’s poorest

The global economic mood is souring. At their meeting in Fukuoka, Japan, earlier this month, G20 finance ministers and central bank governors warned that economic growth remains weak, with risks still tilted to the downside. Just a few days before that gathering, the World Bank had lowered its 2019 global growth forecast to 2.6 per cent – the lowest in three years – and predicted that growth would remain tepid in 2020-2021. These headlines conceal an even gloomier story: the worsening plight of the world’s poorest people. We know from recent experience what needs to be done. The global economy may be struggling, but that is no excuse to ignore the world’s poorest people. Between 2001 and 2019, the number of low-income countries – where annual per capita income is below US$995 – fell by almost half (from 64 to 34), as 32 low-income countries attained middle-income status. This remarkable progress in just one generation – the result of strong growth, better policies and, in some cases, plain luck – lifted millions of people out of poverty. Faster growth is crucial to reducing poverty. From 2001-2018, the 32 economies that moved from low- to middle-income status grew by an average of roughly 6 per cent per year. That was about 60 per cent faster overall than growth in middle- and high-income economies in that period, and some 25 per cent faster than in countries that remained stuck in the low-income bracket. A favourable external environment supported rapid growth prior to the global financial crisis, while the commodities boom of 2001-2011 fuelled heavy investments in exploration and production in many low-income countries. The resulting increase in export earnings improved their governments’ finances. Furthermore, nine low-income countries in Eastern Europe and Central Asia rebounded from deep recessions in the 1990s as they moved from planned to market economies. Low-income countries were thus able to invest more in their people: since 2001, secondary education enrolment rates have doubled, and the investment-to-GDP ratio has increased by five percentage points in low-income countries since 2001. Some countries got a bigger boost than others. Those that moved up the income ladder also had better policy frameworks, governance and business environments. Reality check for the AI revolution: millions don’t even have electricity yet They had more developed infrastructure, greater improvements in human capital and more abundant fiscal resources. Finally, geography was another key advantage. Only about one-third of the countries that moved out of the low-income group in 2001-2019 were landlocked, and those that did often had wealthier neighbours. By contrast, almost half of the remaining low-income economies have no access to the sea. Rapid economic expansion helped to reduce the number of people worldwide living in poverty (on US$1.90 or less per day) by one third between 2001 and 2015. However, these declines were mostly in countries that progressed to middle-income status. Today’s low-income countries must jump higher than their predecessors did to escape poverty. Their per capita incomes are further below the middle-income threshold, and most of these countries are fragile states, marked by conflict or political instability. They rely heavily on agriculture, making them vulnerable to extreme weather. Next, a possible flood of climate-change refugees threatens And demand for their commodity exports is weakening as major emerging markets grow more slowly and shift towards less resource-intensive industries. Moreover, many poorer countries are saddled with heavy debt burdens. Debt service absorbs revenues that could otherwise finance growth-enhancing infrastructure projects, or expenditures on health and education. Because the world’s remaining low-income countries have poverty rates above 40 per cent, their projected per capita income growth is highly unlikely to help reach the United Nations’ sustainable development goal of reducing extreme poverty worldwide to 3 per cent by 2030. These countries therefore need a bold agenda for boosting growth to generate more and better jobs. They need to become more integrated into global trade flows, diversify their exports, and attract more foreign direct investment. Their governments could improve skills and technologies by investing in human capital and infrastructure (within tight budget constraints). This challenging agenda is necessary to lift today’s low-income countries out of poverty. Yet they cannot and should not do it alone. Education the key to ending poverty and boosting gender equality The rest of the world has a responsibility to help – not least because of the impact of entrenched poverty and unfulfilled aspirations on global security and migration. The global economy may be struggling, but that is no excuse to ignore the world’s poorest people. On the contrary, it is the most important reason to do more, and the Osaka summit provides a good opportunity. Ceyla Pazarbasioglu is World Bank Group vice-president for equitable growth, finance, and institutions. Copyright: Project Syndicate

.css-1m2rp1p{color:#34b8b5;}Macroscope | As the global economy slows, spare a thought for the world’s poorest

Macroscope | As the global economy slows, spare a thought for the world’s poorest