![African queue](/sites/default/files/2023-09/africa-queue.jpg)
By Intermit Gill and Ayhan Kose*
The poorest countries are in desperate straits, and the rest of the world is looking the other way. Doing so comes easy, because low-income countries (LICs) matter little to the fate of the world in the near term. At the end of June, the combined GDP of the 28 countries in this group was roughly $500 billion – a drop in the $100 trillion ocean that is the global economy. The world’s poorest countries are also nobody’s ideal export markets: the average annual income is barely $1,000, and conflict and instability are the norm for about half.
Nonetheless, 700 million people live in these countries, and about half of them are in extreme poverty. Very poor people have long been accustomed to neglect from their own governments, which often have other priorities. For example, they spend about 50% more on war and defense than they do on health care. Nearly half their budgets go toward public-sector wages and interest payments on debt, while a mere 3% of total government spending across LICs goes to support the most vulnerable citizens. That is one-tenth the average for developing economies more broadly.
It therefore should surprise no one that a human tragedy is now unfolding in these countries. Key indicators of human development in today’s LICs are far worse now than they were in the LICs of 2000, before many of the latter had ascended to middle-income status. For example, maternal mortality is 25% higher now, and the share of the population with access to electricity has fallen from 52% to barely 40% across this cohort. Average life expectancy is now just 62 years, among the lowest rates in the world.
Making matters worse, the odds of these countries getting help from abroad have declined. Wealthier countries have chosen exactly the wrong moment to become less generous. Even before the pandemic, foreign-aid flows to the poorest countries, especially in Sub-Saharan Africa, were slowing. Today, wealthier countries are redirecting more of their foreign-aid budgets to meet the surge of refugees arriving on their own shores. These developments have left few avenues for economic recovery: by the end of 2024, the average income of people in the poorest countries will still be almost 13% lower than what had been expected before the pandemic.
Between 2011 and 2015, grants accounted for about one-third of government revenues in the world’s poorest countries; but that share has since dropped to less than one-fifth. Poor-country governments have made up the difference by going deeper into debt – and at punishing interest rates. Government debt-to-GDP ratios in these economies soared from 36% of GDP in 2011 to 67% last year – the highest level since 2005 (with the exception of 2020). Fourteen LICs are now in debt distress or at high risk of it – more than double the number just eight years ago.
As they gather in New York for the United Nations 2023 SDG Summit, global leaders cannot afford to turn a blind eye to these developments. They must not forget the fundamental promise of the Sustainable Development Goals: “to reach the furthest behind first.” Even as they remain generous to arriving refugees, wealthier countries should redouble their efforts to end the misery at the source.
That means enlarging the pool of resources available to multilateral development banks, so that they can increase grants and concessional financing for the poorest countries. Greater funding is not just a moral imperative to prevent a disaster in the poorest economies; it is a matter of self-interest for all countries with the means to help. Southern European countries struggling to manage migration flows should know that they will benefit from supporting development in poor countries such as Niger.
Wealthier countries, and all international financial institutions, should move decisively on three fronts. First, they must increase concessional financing for the poorest countries, with aid going to addressing emerging challenges such as climate change, economic fragility, and pandemics.
Increased aid also will help these countries invest in critical sectors such as health, education, and infrastructure, which will enhance their resilience and growth potential. Aid effectiveness (a major concern for donors) can be improved by strengthening donor coordination and building competent local institutions to select, manage, and monitor projects. International financial institutions, for their part, can help crowd in private finance in sectors that offer the promise of both development and profits.
Second, debt restructuring must be accelerated. The Common Framework for Debt Treatment Beyond the DSSI has struggled to deliver relief ever since the G20 announced it nearly three years ago. If finalized, Zambia’s debt-restructuring agreement with its creditors will be a welcome development; but it was concluded three months ago, and the country is still waiting for debt relief.
The framework’s glacial pace – and all the uncertainties that come with it – have deterred too many countries from seeking the relief they so urgently need. It is time to pick up the pace. For many lower-income countries, restoring long-term debt sustainability will depend on debt restructuring. Without it, they will remain paralyzed, unable to attract the private financing they need to tackle the formidable development challenges of this decade – from creating jobs and improving welfare to making the planet more livable.
Finally, we must double down on the reform agenda by ensuring that global initiatives to bolster the poorest countries are complemented by ambitious domestic measures. International financial institutions can make a difference by helping LICs mobilize domestic revenues and improve spending efficiencies and debt management. They can also support governments’ efforts to improve institutional frameworks, build human capital, ease impediments to private investment, and harness the potential of digital technology, all of which will boost these countries’ long-term growth prospects.
Time is running out. The growing hopelessness among citizens of the poorest countries will feed a vicious cycle that is already underway. Desperate to escape misery at home, many will risk everything to find refuge abroad. The suffering of millions of people in faraway lands is not as far away as it may seem. It is contagious, and it is already spilling over national borders, with unpredictable global consequences.
*Indermit Gill is Chief Economist and Senior Vice President for Development Economics at the World Bank. M. Ayhan Kose is Deputy Chief Economist and Director of the Prospects Group at the World Bank. Copyright: Project Syndicate, 2023, and published here with permission.
11 Comments
Even with zero corruption, overshoot is still the bigger problem.
We in the global North, did most of the corrupting too - as in: stealing their resources.
Not that it matters now - the problem is unfixable, but locally there is a best way for us to address it. And that is to close our borders. Now. Many will hide by calling that a racist comment, but it is no more than a survivalist one.
Hardin's Lifeboat Essay sums it up...
Could not agree more PDK. Stop immigration now and learn how to survive with what we have. Will be incredibly tough and political suicide for any party bold enough to suggest such a thing. So we rae doomed to continue with the failing neo liberal endless growth model partially driven by high immigration draining our remaining resources unsustainably. More infrastructure further drains these precious resources. Bite the bullet now I say. Except it will never happen due to self interest by the masses in Aotearoa. If some clever person could develop a transitional plan to get us from here to T sustainable and non polluting future that would be a start. Except again we would be operating alone in the world. It is too tough for most to contemplate. So nothing will happen and our children and grandchildren are condemned to an extremely bleak and dangerous future.
No immigration means high inflation, no progress in NZ, the place is a mess. Kiwis are leaving en masse, both my kids amongst them, and I've told them not to come back, the future for NZ is very bleak indeed at the moment.
Unless there's a change of government NZ is going to be a third world backwater, it's already moving down the scale of wealthy countries.
What a blessing NZ sits isolated in the roaring forties, too distant to attract boat loads of refugees.
There is another element to consider in the aid and development sector. That is the commodification of the sector. International NGOs pay good coin to expats delivering the programmes, with local staff paid local wage rates (10% of expat packages?). Securing the next project funding is an important business function within those NGOs.
I have a question I'm my mind as to whether the UN SDGs serve the self defined priorities within the recipient nations. I look at the reduction in aid funding for food production (including secure pest proof storage for durable long-store foods, e.g. beans, corn, cereals, ground nuts, etc that are important to both dietary nutritional value and resilient food supply) that has occurred because that has become less sexy.
This is illustrated by a search of positions on the NZ Volunteer Service Abroad (VSA) website where there is no longer an agriculture category search option. VSA fills a major role in the delivery on NZ government development implementation in the Pacific region. I contend that the ability for an LIC to feed itself, has to be one of the highest priorities - otherwise it must incur foreign currency cost to import the food that is the most fundamental human need.
And in the meantime here in NZ, in the run up to the election, the call is to cut taxes, and increase spending on health, education, etc - collectively an "I want service but I don't want to pay". Go figure.
The sooner a capital gains tax on property is introduced the better. I for one do not want to see re-emergence of user pays for health and education, I.e. the commodification of those core services.
I'm finding it pretty stressful trying to figure how I will vote. Lip service is given to the issues of funding education, health, infrastructure etc. Yet no party has the guts to propose the unpopular policies that would gathere the necessary funding.
Livestock is a capital item in a farm business and is taxed (albeit there is a choice between 2 regimes to calculate tax position).
Tax payable or claimable on change of value at balance date. Treat other assets similarly. Surely that would incentivise investment in profitable revenue generating activity.
The 28 countries are: Afghanistan, Ethiopia, Mali, Sudan, Togo, Burundi, Guinea, Mozambique, Sierra Leone, Uganda, Burkina Faso, Gambia, Malawi, Somalia, Yemen, Central African Republic, Guinea-Bissau, Niger, South Sudan, Zambia, Congo, Liberia, North Korea, Syria, Eritrea, Madagascar, Rwanda, Chad.
For the sake of the economic argument ignore those destroyed by warfare and the problem becomes simpler. Why are Malawi, Zambia, Uganda, Mozambique, Madagascar failing? Could they start performing better? If China and Taiwan can move from poverty to modest wealth why not these countries?
Have you read Paul Collier, The Bottom Billion? An interesting follow up podcast is https://in-pursuit-of-development.simplecast.com/episodes/paul-collier-r9LlhaYd/transcript
The western world is plundering those countries of their talent.
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