TWN Info Service on UN Sustainable Development (Nov24/04)
25 November 2024
Third World Network

UN: Towards a new, inclusive & equitable international economic order
Published in SUNS #10124 dated 25 November 2024

Penang, 22 Nov (Kanaga Raja) — “Multilateralism must be redesigned to achieve the necessary reforms which address systemic flaws in the existing international economic order and build a new, inclusive and equitable economic order,” according to a new United Nations report.

In a report (A/79/320) to the seventy-ninth session of UN General Assembly, the UN Secretary-General said this will also strengthen the United Nations’ capacity to deliver on sustainable development, including by facilitating joint global action to reduce global systemic risk and strengthen resilience.

At the centre of the multilateral system, the United Nations provides an inclusive forum for addressing current challenges and fostering consensus on joint global actions for a New International Economic Order that is just, fair, equitable and able to address the new and emerging challenges for the benefit of people and the planet, said the report.

The report provides an updated overview of the major international economic and policy challenges for equitable and inclusive sustained economic growth and sustainable development.

It said these include a slow and uneven recovery from the coronavirus disease (COVID-19) pandemic; multiple ongoing violent conflicts; a continuing cost-of-living crisis; increasingly unsustainable sovereign debt burdens; prospects of tepid economic growth; and more frequent and devastating climate-related disasters.

It said the situation is made worse by growing geopolitical concerns, geoeconomic fragmentation and an uneven distribution of the benefits of technological change.

The report also reviews the role of the UN and makes actionable policy recommendations to overcome those challenges, in the context of the New International Economic Order.

Recommended actions include the need to further develop measures of sustainable development that go beyond gross domestic product; systematic support for broader technology diffusion and adoption; meaningful reforms of the international financial architecture and the multilateral trading system; and reinvigorated multilateralism that can help deliver on sustainable development commitments.

BACKGROUND

According to the report, fifty years have passed since the adoption of the Declaration on the Establishment of a New International Economic Order (General Assembly resolution 3201 (S-VI)) and the Programme of Action on the Establishment of a New International Economic Order (General Assembly resolution 3202 (S-VI)).

“Since then, the world economy has witnessed dramatic changes, with developing countries gaining growing economic and political influence and achieving improved quality of life for their citizens. Progress has been uneven, however, new challenges have emerged and the main principles of the Declaration and Programme of Action remain valid to this day.”

It said many of these principles have been reaffirmed in the outcomes of major United Nations conferences and summits in the economic, social and related fields, including the 2030 Agenda for Sustainable Development, the Addis Ababa Action Agenda of the Third International Conference on Financing for Development and the Paris Agreement.

In the two years since the issuance of the previous report on the New International Economic Order (A/77/214), the world has continued to suffer from interconnected shocks and crises that have hit vulnerable populations and countries the hardest and reversed progress on sustainable development, it noted.

The report said challenges range from a slow and uneven recovery from the COVID-19 pandemic; deleterious effects of a prolonged war in Ukraine and violent conflicts in Gaza, the Sudan and many places around the world; an ongoing cost-of-living crisis; increasingly unsustainable sovereign debt burdens; prospects of tepid economic growth; and more frequent and devastating climate-related disasters.

It said the situation is made worse by geopolitical tensions and fragmentation, leading to sluggish trade growth, reducing global economic dynamism and disrupting established global supply chains.

Rapid technological change – potentially an important driver of sustainable development – has been concentrated in a few countries and poses the risk of leaving developing countries further behind, it added.

The report noted that international efforts to address the confluence of crises so far have had limited success, causing the Sustainable Development Goals to appear increasingly out of reach.

At the same time, it said that there is a growing consensus on the need for enhanced multilateral action, stronger development cooperation and a meaningful reform of the international financial and trading systems.

DEVELOPMENT CHALLENGES

The report said that after the adoption of the 2030 Agenda, there was some early progress towards achieving the Sustainable Development Goals.

However, it said that progress in poverty reduction and health outcomes, such as reduced child mortality, was slower than between 2000 and 2014, and some areas, such as undernourishment and primary school completion, saw little to no improvement since 2015.

Overall, the Secretary-General said that the world was off-track to achieve the Goals even before the start of the COVID-19 pandemic.

From 2020, a confluence of crises has caused severe setbacks to the Sustainable Development Goals across the globe, he added.

As a result of COVID-19, around 120 million people fell back into extreme poverty in 2020, causing the first increase in the global extreme poverty rate in 20 years. Around 9 per cent of the world’s population currently lives in extreme poverty, totalling more than 700 million people.

“Inequality between countries is projected to have risen 4.4 per cent between 2019 and 2020, the largest such increase in three decades.”

Around 600 million people could face hunger in 2030, about 119 million more than in a scenario without the COVID-19 pandemic and without the war in Ukraine. Amid a worsening climate emergency, more people are now suffering from disasters, with an increase in the number of affected people going from 1,169 per 100,000 between 2005 and 2014 to 1,980 per 100,000 between 2013 and 2022.

Beyond their immediate effects, shocks and crises can have long-lasting impacts on sustainable development, the report said.

“Without adequate protection mechanisms, even households that were non-poor before a crisis can fall into a poverty trap. When shocks and crises are recurrent, the risk of long-lasting development setbacks and poverty traps is higher, since repeated shocks reduce the coping capacities of both Governments and households.”

The report said risks are greater for less developed countries with fewer resources to provide social protection and enact counter-cyclical policies and for households that are closer to the poverty line.

“Some countries are more vulnerable to shocks, such as climate-related disasters, putting them more at risk of development setbacks.”

Since the issuance of the previous report on the New International Economic Order in 2022 (A/77/214), global economic growth has returned to (relatively weak) pre-pandemic levels, albeit with large differences between countries and regions, the report pointed out.

After slowing from 3.1 per cent in 2022 to 2.7 per cent in 2023, global gross domestic product (GDP) growth for 2024 and 2025 is expected to remain at similar levels.

Among developing regions, East and South Asia enjoy solid GDP growth at an expected rate of 4.6 per cent and 5.8 per cent in 2024, respectively, thanks to robust demand and improved global trade.

“Growth trajectories in Africa and Latin America and the Caribbean are lower, owing to still-tight monetary conditions and structural weaknesses. In turn, growth in Western Asia remains weighed down by geopolitical tensions.”

Current growth trends in developing countries are insufficient to allow for meaningful convergence with the developed world, except for a small group of fast-growing economies.

In particular, the report said growth in least developed countries remains far below Sustainable Development Goal target 8.1 of at least 7 per cent, despite a slightly improved outlook for 2024 and 2025 – of 4.8 per cent and 5.3 per cent, respectively, up from 4.2 per cent in 2023.

The report also said global investment growth has been declining since 2021 (from 5.1 per cent in 2021 to 3.7 per cent in 2023), owing to a sharp reduction in developing economies, amid high real interest rates, tight fiscal space and geopolitical risks.

Global trade fell by 3 per cent in value terms in 2023, as trade in goods contracted by 5 per cent while trade in services grew by 8 per cent, thanks to a continued recovery in international tourism and transport.

Global trade flows have started to recover in 2024, but geopolitical tensions and escalating freight costs pose challenges. Overall, trade growth in 2024 and 2025 is expected to remain below pre-pandemic levels, it said.

Global headline inflation has declined sharply, from 8.1 per cent in 2022 to 5.7 per cent in 2023, but it remains above its pre-pandemic average.

In developing countries, consumer prices increased by a cumulative 21.4 per cent between January 2021 and December 2023, hampering the post-COVID-19 economic recovery.

The report said food inflation remains high in many developing countries, owing to limited pass-through from declining international prices, weak local currencies and climate-related shocks.

In the first quarter of 2024, developing countries saw a mean year-on-year increase in food prices of about 10 per cent.

Amid geopolitical tensions and weather-related challenges, international food and energy prices may come under renewed pressure, which could exacerbate already high levels of food insecurity and hunger, it warned.

It said that declining headline inflation means that the global monetary tightening cycle may be about to end.

However, continued concerns about inflationary pressures may cause rates to stay higher for longer. While the European Central Bank first cut interest rates in June 2024 and the Federal Reserve Board of the United States of America is expected to cut rates later during the year, the timing and magnitude of further cuts remain uncertain.

Higher-for-longer rates in the United States and Europe may delay rate cuts in developing countries, weighing on investment outlook and prospective growth, said the report.

Global public debt as a share of GDP reached 94.4 per cent in 2023. This was below the 99.2 per cent recorded in 2020, but 11 percentage points above the pre-pandemic level.

The recent decline was mainly driven by developed economies and developing countries in Western Asia and Latin America and the Caribbean.

By contrast, public debt in low-income countries reached record levels in 2023 and remained elevated in least developed countries, at close to 60 per cent of GDP.

High sovereign debt burdens and still-high global interest rates mean that debt service continues to weigh heavily on the fiscal space of developing countries, said the report.

In 2024, Governments in Africa are projected to spend on average over one quarter of total public revenues on interest payments, crowding out much-needed social spending and investment in sustainable infrastructure.

Meanwhile, developed countries have long benefited from an international financial architecture that has evolved to meet their needs, resulting in lower interest rates on their sovereign debt. Despite a small increase in recent years, interest payments as a share of public revenues have remained low in these countries, at about 6 per cent.

Debt burdens are becoming increasingly unsustainable for many developing countries. Currently, 55 per cent of least developed countries and other low-income countries are at high risk of debt or in debt distress.

The report said of these countries, four have requested a debt restructuring under the Group of 20 Common Framework for Debt Treatments. Two other countries have completed or are undertaking a debt restructuring under the Heavily Indebted Poor Countries Initiative.

It said several other countries are engaged or have announced interest to restructure their debt through bilateral negotiations.

IMPACT FROM SHOCKS & CRISES

The recent confluence of crises has affected all countries, but its impact has been highly unequal, depending on the vulnerability and resilience of people and societies, said the report.

It noted that a lack of equitable access to financial resources and advanced technologies, spillovers from volatile international financial markets, and continued vulnerabilities to terms-of-trade shocks have left many developing countries more exposed to such crises.

In least developed countries, where an average of 25.4 per cent of the population were living in extreme poverty in 2018, this share rose to 29.7 per cent in 2021, more than in any other country group.

“Increases in hunger and food insecurity are of particular concern in Africa, where 33 countries were in urgent need of external food assistance as at March 2024.”

When school closures began in 2020, only one in six of the poorest children had access to the Internet, causing many to fall behind on education, the report further said.

Learning losses were compounded where Governments had to cut back on education spending as a result of fiscal constraints – as was the case in 65 per cent of low- and lower-middle-income countries.

Some countries are more vulnerable than others to the growing frequency and severity of natural hazard-based disasters, it noted.

For instance, recent estimates show that low- and lower-middle-income small island developing States have experienced five times more deaths owing to climate change-attributable disasters between 2000 and 2022 (adjusted for population size) than non-small island developing States in the same income group.

Across all income groups, average attributable economic losses were higher in small island developing States than in non-small island developing States, both as a percentage of GDP and as a percentage of Government revenues, it added.

Countries that are more vulnerable to shocks and crises need to strengthen their preparedness, resilience and response capacities to protect their populations. Investment in the Sustainable Development Goals is key to reducing vulnerabilities, the report underlined.

Yet, financing gaps for Sustainable Development Goals investments that were significant before 2020 have only increased in recent years, with estimated financing needs ranging between $2.5 trillion and $4 trillion annually.

It said countries with limited fiscal space and State capacities, and countries that are more vulnerable, will need support from the international community – including through access to affordable and stable long-term finance – to mitigate the social, economic and environmental impacts, strengthen resilience for the future, and advance sustainable development.

Sustained improvements will require a reform of the international financial and trade systems, to facilitate access to international finance on equitable and fair terms, enable a productive insertion of all countries in international trade, reduce vulnerabilities to external shocks (including through reduced commodity dependency) and facilitate much-needed technology transfer, it added.

It said eligibility for concessional financing currently depends mainly on countries’ income per capita. To better address individual development needs and reduce vulnerabilities, there is a need to further explore and develop measures that go beyond GDP. Political momentum for such measures has picked up in recent years.

TECHNOLOGY DIVIDES

Highlighting the opportunities and challenges of frontier technologies, the report said the rapid advancement of artificial intelligence has opened the door to a host of new applications that have the potential to boost economic productivity and accelerate sustainable development.

However, the actual economic impact of artificial intelligence is still unclear and may take a long time to become apparent. While there is uncertainty about what the most promising sectors would be for applying generative artificial intelligence in different developing countries, there have been some early positive results in areas such as health care, disaster response, agriculture and education, it added.

Despite great potential benefits, unintended consequences and intentional misuse or artificial intelligence can also harm economic, social and environmental outcomes and human rights, it warned.

“This includes the risk of job losses and increased inequality owing to greater automation and a shift in global value chains which is driven by technology-enabled re-shoring.”

While the expected impacts of generative artificial intelligence on labour markets and productivity are still unclear, recent analysis points towards greater exposure of higher-skilled occupations and higher impacts on more developed economies.

The report said rapid developments in digital technology, social networks and artificial intelligence applications pose threats to data security and privacy, reinforce biases and have turbocharged ways to spread misinformation and disinformation.

It said high levels of energy consumption, water use and electronic waste are also causing concern. At the same time, uneven access to new technologies and market dominance by a small number of companies are increasingly turning existing technology divides into development divides.

Whether developing countries will be able to benefit from green energy and other frontier technologies depends on the access to, and affordability of, these technologies.

It also depends on countries’ readiness to innovate, adapt and employ these technologies for economic, social and environmental development goals, while avoiding potential risks and drawbacks, the report suggested.

Some countries are better placed than others to take advantage of opportunities, but all countries need to develop strategies to overcome constraints and ensure they are not left behind, it said.

According to the report, a new consensus for international trade is needed to promote technological capacity, innovation and resilience in developing countries, including through more flexibility in intellectual property rights and technology transfer.

“Countries with lower capacities will require additional support, including in the form of official development assistance (ODA).”

It said rapid technological change can worsen inequalities between and within countries, pointing out that the development and commercialization of frontier technologies is dominated by a small number of countries.

For example, in smart manufacturing, 90 per cent of all patenting activity is concentrated in 10 countries.

In green technologies, this is even more pronounced, with just seven countries accounting for 90 per cent of patenting activity. With the exception of China, these are all high-income countries.

By contrast, it said most developing countries, especially least developed countries and other low-income countries, lack the necessary enabling factors (including skills, infrastructure and access to financing) to successfully innovate in these areas and/or to access and benefit from these technologies.

Along with a lack of access to affordable frontier technologies owing to existing patent regimes, most of these countries lack technology absorption capacities, it added.

“As digital technology continues to evolve, so does the nature of digital divides. Most people now live in areas that are covered by mobile Internet; in 2023, 82.0 per cent of the population of least developed countries was covered by at least a third generation (3G) mobile services network, up from 53.2 per cent in 2015.”

Yet, the divides between countries are larger than ever when it comes to fifth generation (5G) mobile services networks, which are critical for frontier technologies such as artificial intelligence.

In 2023, only 2.7 per cent of the population of least developed countries was covered by at least a 5G mobile network, compared with 11.7 per cent in lower-middle-income countries, 56.7 per cent in upper-middle-income countries, and 88.6 per cent in high-income countries.

Furthermore, the gaps in Internet usage between countries remain large (at 35.4 per cent of the population in least developed countries, compared with 93.2 per cent in high-income countries), mainly owing to the relatively high cost of Internet access and digital devices, said the report.

It said other measures also show persistent technology divides between countries. A comprehensive assessment that includes Internet performance, skills, research and development activity, industrial capacity and access to finance, finds that high-income countries consistently outrank middle- and low-income countries.

By region, countries in Latin America and the Caribbean lag behind other developing regions, and countries in sub-Saharan Africa are the least prepared to use, adopt and adapt frontier technologies.  According to these measures, low-income countries fell further behind countries at the technology frontier between 2008 and 2021, while many upper-middle-income and some lower-middle-income countries moved closer to the frontier.

Persistent and, in some cases, growing technology divides can exacerbate the slowdown in technology diffusion that has been observed in recent decades, said the report.

“While the concentration of the development of frontier technologies is not problematic in itself, it becomes a problem when traditional channels of technology diffusion become less permeable, hampering productivity growth and sustainable development.”

Reasons for the slowdown in technology diffusion include the greater complexity of innovations that require a higher level of skills and complementary investments for their adoption and adaptation; a tight and complex web of intellectual property rights protections; increasing trade barriers; and other strategic policy restrictions, such as re-shoring, near-shoring or de-risking of supply chains, said the report.

A particular challenge in the case of artificial intelligence is the shortage of available online training content in languages other than English.

Harnessing the potential benefits from technological progress, while avoiding risks and drawbacks, requires coherent national science, technology and innovation strategies, it underlined.

The report said successful technology diffusion and adoption also requires international financial, technical and capacity-building support, to help overcome persistent technology divides.

“This should be accompanied by an enabling international environment that facilitates developing countries’ productive insertion into global value chains; provides adequate, balanced and effective protection of intellectual property rights; and promotes multilateral guardrails such as the proposed digital compact.”

Fifty years ago, Member States declared that international cooperation for development is the shared goal and common duty of all countries (General Assembly resolution 3201 (S-VI)).

Today, multilateral cooperation must be redesigned and reinvigorated to reflect current realities and realignments so that the world can effectively tackle current and future challenges, said the report.

Amid recurrent and converging crises that have set back sustainable development and widened the gulf between developed and developing countries, and rapid technological progress whose benefits are not equitably shared, there is an urgent need and an opportunity for change, it added.

REFORM OF FINANCIAL ARCHITECTURE

The report also said there is a growing consensus on the need to reform the international financial architecture, including to address growing debt challenges, enhance the global financial safety net, scale-up concessional financing for Sustainable Development Goal investments and make the international tax architecture transparent, fair and unbiased.

International trade must be revived as the powerful engine for sustainable development it has been in the past, including by countering recent trends towards more unilateral trade measures and geoeconomic fragmentation.

“At the centre of the multilateral system, the United Nations provides an inclusive forum for addressing current challenges and fostering consensus on joint global actions for a New International Economic Order that is just, fair, equitable and able to address the new and emerging challenges for the benefit of people and the planet.”

It said the international financial architecture – the set of international financial and monetary frameworks, rules, institutions and markets that have evolved since 1945 – has come under increasing pressure.

“Recent decades have been marked by highly volatile international capital flows and recurring financial and economic crises.”

Developing countries face highly unequal access to financial markets, higher borrowing costs compared with developed countries with similar risk profiles, limited access to liquidity in times of crisis, and heavy sovereign debt burdens that are in many cases crowding out public investment in the Sustainable Development Goals, said the report.

“The lack of equitable representation in decision-making bodies, especially the International Monetary Fund (IMF) and the World Bank, has hampered reform efforts that could improve developing countries’ access to international financing.”

The report said a meaningful reform of the international financial architecture requires action in several areas, including to (a) reduce the risk of debt distress – including through further improvements to the Common Framework for Debt Treatments and concrete steps toward a permanent sovereign debt restructuring mechanism; (b) increase access to concessional long-term financing – including through increases in the capital bases of multilateral development banks, better financing terms, and a massive increase in climate finance, without crowding out official development assistance; ( c) enhance contingency financing – including through new uses for special drawing rights, more flexible IMF lending, and other improvements to the global financial safety net; (d) make international tax cooperation fully inclusive and more effective – including through a United Nations framework convention on international tax cooperation; and (e) fulfil the long-standing commitment to strengthen the voice and participation of developing countries in the governance arrangements of international financial institutions.

ROLE OF TRADE

The report also said that it has been long debated whether trade can play the role of an engine of growth for developing countries by supporting a virtuous circle connecting jobs, investment, productivity, and incomes.

While export-oriented policies have shown some remarkable success in the past, more recently, the development outcomes from trade for developing countries – especially through their integration into global value chains – no longer seem to translate into dynamic moving up the value chain like they did in East and South-East Asia.

According to the report, multiple and recurrent crises like COVID-19, the worsening impacts of climate change and a growing number of violent conflicts are disproportionally affecting developing countries, making it more difficult for them to improve their share in global trade, which itself has become less dynamic.

It said the decline in global trade during 2023 was more pronounced in developing countries, whose imports and exports fell by an average of 5 per cent and 7 per cent, respectively.

The report noted that global goods trade declined in most sectors, but it declined by more than 10 per cent in apparel, chemicals, energy metals, office equipment and textiles, which are some of the major export sectors for developing countries.

“The subdued outlook for global trade in 2024 and 2025 remains subject to significant downside risks, such as persistent geopolitical tensions, rising shipping costs, and high levels of debt weighing on economic activity in many developing countries.”

Vulnerable developing countries also face continuing challenges to integrating into the global trade of both goods and services, as rising digital trade threatens to further exacerbate existing inequalities, said the report.

The report said the declining share of developing countries in global trade is accompanied by rising export market concentration, with increased ability of large firms and digital platforms to extract increasing rents.

Empirical evidence suggests that part of the surge in the profitability of top multinational enterprises – a proxy for the very large firms dominating international trade and finance – together with their growing concentration, has acted as a major force pushing down the global labour income share, thus exacerbating personal income inequality.

It has also led to unequal trading relations even as some developing countries have deepened their participation in global trade, it added.

Several factors have contributed to growing trade fragmentation and a non-linear relationship between trade and development in recent years.

According to the report, these include a rise in the utilization of geopolitical-related trade restrictive measures, such as non-automatic licensing, incomplete rebates of value added tax on exports or even outright bans, inward-looking industrial policies, re-shoring, near-shoring and de-risking, and trade related unilateral climate actions.

Those trade measures, which include curbs related to high-technology components and critical minerals, are also posing new challenges to a green transition.

The report said that making trade work for sustainable development requires maintaining an open, rules-based, transparent, and non-discriminatory multilateral trading system and international trade policies that support sustainable development goals.

A new consensus on international trade should accommodate policy priorities such as building resilient supply chains, delivering decent jobs and enabling more flexibility in intellectual property rights.

It should support technological capacity and innovation in developing countries, and it should further strengthen South-South trade cooperation.

It said reforms to reinvigorate the World Trade Organization should be accompanied by the reinstatement of an effective dispute settlement mechanism. +