UN Deputy Secretary-General, Amina Mohammed, addresses the High-Level Conference on Middle Income Countries in Rabat, Morocco. © UNHCR Morocco/Ass Hagouchi - Photo: 2024

Middle-Income Countries, Hit by Debt Burdens and Rising Inflation, Fight for Survival

By Thalif Deen

UNITED NATIONS | 16 February 2024 (IDN) — The Group of 77 (G77) is the largest single coalition of developing countries comprising over two-thirds of the 193-member United Nations.

Besides protecting and promoting the economic interests of 134 nations, the G77 is also home to several sub categories, including the world’s least developed countries (LDCs), landlocked developing countries (LLDCs), small island developing States (SIDS) and middle-income countries (MICs).

But most of the MICs have recently taken a severe beating—their economies undermined by heavy debt burdens, recurrent natural disasters, rising inflation, political upheavals and the lingering after-effects of the Covid-19 pandemic.

MICs include countries such as India, Indonesia, Malaysia, Brazil, Argentina, Nigeria, South Africa, Morocco and Algeria, amongst others.

Speaking at a conference focusing on MICs in Rabat, Morocco, on 6 February, UN Deputy Secretary-General Amina Mohammed said middle-income countries represent close to one-third of global GDP, and they are major engines of global growth.

With 75% of the world’s population, she pointed out, MICs are global drivers of sustainable development. Yet, vulnerabilities are not solely a function of and do not disappear with income level.

Middle-income countries are also home to some 62% of the world’s poor. Of the ten poorest countries in the world, where more than half the population lives in extreme poverty, three are middle-income countries in Africa, she said.

Climate emergency

Mohammed said middle-income countries are still recovering from the impacts of the COVID-19 pandemic that left millions, especially women and youth, without jobs and livelihoods and drove millions into poverty, setting back decades of achievements, fuelling social discontent and loss of confidence in governance.

“Like other developing countries, they are staring down a climate emergency that, for some, threatens their very existence or viability. Increasing conflicts and instability, and for some domestic upheavals, are causing immense suffering to those directly affected with consequences felt around the globe,” she pointed out.

Recurrent and more intense natural disasters, with mounting economic losses, equally dramatic recovery costs and heavy public debt burdens, hamper economic recovery and weigh on investments for a better future.

Thirty-nine middle-income countries have net interest payments that account for more than ten percent of government revenue, compared to twenty-three countries a decade ago, she noted.

Bhumika Muchhala, a political economist and advocate, and researcher with Third World Network (TWN), told IDN the last two years of monetary tightening by the Federal Reserve (and the European Central Bank) has led to an approximately 20% dollar appreciation generating a domino effect of adverse spillovers for many developing countries, particularly those with twin deficits and financial vulnerabilities.

“These spillovers include currency depreciation, as capital rushed out of developing countries and into US Treasury bills and other assets, generating cost-of-living shocks, increasing the national import bill and importing inflation, leading to a tightening of domestic monetary policy and even deeper economic contraction in developing countries, (and especially middle-income countries)”.

She said these multiple channels exacerbated pre-existing sovereign debt distress by increasing both dollar-denominated interest payments and the domestic currency cost of repaying dollar debt. At the same time, local risk spreads widened, and equity prices decreased.

Crisis of inequality

“Perhaps most critically, in this cascade of deleterious effects, trade and tax revenues have decreased in a context of fiscal austerity measures, where women and girls absorb a disproportionate share of economic shocks generated by public budget cuts, regressive taxation and domestic rate increases led by independent central banks.”

The result has been a compounding crisis of inequality between and within nations, reversing economic development, stalling social contracts and derailing SDG achievement even further.

“All the while, the international responsibility of rich countries, in particular the US, for cross-border spillovers that violate the economic and social rights of other nations goes unheeded,” she declared.

In an interview with Time magazine last week, World Bank President Ajay Banga said: “We are a money bank. We gave out $100 billion-plus last year to the poorest countries, as well as middle-income countries, to fight everything, from inequality to climate change to food insecurity”.

“But for many of the countries I met with, what was more important was our knowledge and our subject matter expertise. I call that the knowledge bank.”

According to the World Bank, MICs are a diverse group by size, population, and income level. They are defined as lower-middle-income economies—those with a GNI per capita between $1,086 and $4,255; and upper-middle-income economies—those with a GNI per capita between $4,256 and $13,205 (2023).

Impact of right-wing politics

Singling out the impact of right-wing politics on MICs, Anuradha Mittal, Executive Director, the Oakland Institute in California, told IDN recent history of Brazil shows that at the end of the day, “MIC’s challenges are the same as richer countries, i.e. much depends on the election of public officials with integrity and a commitment to the public good and the environment vs. corrupt and/or far right leaders working for the rich and to further corporate profiteering, as we see more and more in the Western hemisphere.”

“If we look at Brazil, dramatic progress was made in social and environmental polices during President Lula’s first tenure, resulting in historic reduction in hunger, deforestation, and advancement of Indigenous rights.”

Following this, (former President) Bolsonaro, with his right-wing agenda, worked hard to reverse and destroy those policies. Now back in power, President Lula has returned to the same progressive agenda.

For instance, in June 2023, she pointed out, Brazil announced the procurement of 500,000 tons of maize from rural producers through the Federal Government Acquisitions mechanism, intending to replenish public food reserves—resuming a policy that had been discontinued under the previous government. This measure helps stabilize.

With wars in Ukraine and the Middle East, the challenge of picking sides is a major obstacle for the MICs when we need global cooperation to ensure social and environmental progress, including a major lift to address the climate emergency, she declared. [IDN-InDepthNews]

Photo: UN Deputy Secretary-General Amina Mohammed addresses the High-Level Conference on Middle-Income Countries in Rabat, Morocco. © UNHCR Morocco/Ass Hagouchi

IDN is the flagship agency of the Non-profit International Press Syndicate

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