Bad news for the world’s poorest

Bad news 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% – the lowest rate 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. With a weaker global economy making their climb out of poverty even harder, the world must support a range of bold policies to help them.

We know from recent experience what needs to be done. Between 2001 and 2019, the number of low-income countries – where annual per capita income is below $995 – fell by almost half (from 64 to 34), as 32 low-income countries attained middle-income status, whereas only two new countries joined the group of low-income countries. 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 year. That was about 60% faster overall than growth in the middle- and high-income emerging market and developing economies in that period, and some 25% 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 fueled 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. Separately, multilateral debt-relief initiatives in 2001 helped some low-income countries to stabilize their budgets and economies. Conflicts in some African countries eased, leading to a steady decline in violence-related casualties. And further trade integration boosted exports, attracted foreign investment, and spurred reforms. Low-income countries were thus able to invest more in their people: since 2001, secondary education enrollment rates have doubled, and the investment-to-GDP ratio has increased by five percentage points in low-income countries since 2001.

Read the rest of the article at NewEurope


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