Aurelia Butler

The writer is an economist serving as secretary-general of the United Nations Conference on Trade and DevelopmentThere is an alarming tendency among the international community to regard debts in the developing world as sustainable because they can, after some sacrifice, be paid off. But this is like saying a poor family will stay afloat because they always repay their loan sharks. To take this view is to overlook the skipped meals, the foregone investment in education and the lack of health spending that forcibly make room for interest payments. This sort of debt trap is a social catastrophe in the making. Ten years from now, the debt may be repaid, but the family will be ruined.This is the dilemma facing many developing countries, both big and small. The pandemic, cost of living crisis and rising interest rates have brought them to a point where they can only pay their debts by way of austerity or foregone investment in the sustainable development goals (SDGs). Their debts are sustainable in that they can be repaid, but unsustainable in every other way.Furthermore, this full-blown development crisis with debt distress at its core also threatens a new lost decade for much of the world economy.The repeat of a 1980s-style debt crisis that could in turn threaten global financial stability is perceived to be marginal. But the public debt of developing countries, excluding China, reached $11.5tn in 2021. By some accounts, serious debt problems are largely confined to a small share of this figure, owed by highly vulnerable low-income countries such as Chad, Zambia or Ethiopia.But the situation is deteriorating rapidly. During the pandemic, government debt ballooned by almost $2tn in more than 100 developing countries (excluding China), as social spending went up while incomes froze due to lockdowns. Now, central banks are raising interest rates, which exacerbates the problem. Rising rates have meant capital flight and currency depreciation in developing economies, as well as increasing borrowing costs. These factors have pushed countries such as Ghana or Sri Lanka into debt distress. In 2021, developing countries paid $400bn in debt service, more than twice the amount they received in official development aid. Meanwhile, their international reserves declined by over $600bn last year, almost three times what they received in emergency support through the IMF Special Drawing Rights allocation. Foreign debts are therefore eating an ever-larger piece of an ever-shrinking national resources pie. As inflation rises, natural disasters become more frequent and food and energy imports rise in price, countries need more, not less, contingency planning assistance. A much bolder approach is needed. Recent efforts by the international community to agree on large-scale emergency debt measures have faltered. This is despite important efforts at the G20 through the now-discontinued Debt Service Suspension Initiative, and the Common Framework for Debt Treatments, which is in need of crucial improvements, such as suspending payments during negotiations and an extension to middle-income countries in debt distress.The failure of these efforts has revealed the complexity of existing procedures, characterised by creditors who refuse to engage in restructuring with extraordinary powers of sabotage. Crisis resolutions are often too little, too late. The world lacks an effective system to deal with debt.An independent sovereign debt authority that engages with creditor and debtor interests, both institutional and private, is urgently needed. At a minimum, such an authority should provide coherent guidelines for suspending debt payments in disaster situations, ensuring SDGs are considered in debt sustainability assessments, and providing expert advice to governments in need.Furthermore, a public debt registry for developing countries would allow both lenders and borrowers to access debt data. This would go a long way in boosting debt transparency, strengthening debt management, reducing the risk of debt distress and improving access to financing. Progress on both these fronts could begin with an independent review of the G20 debt agenda: India’s presidency may bring a historic opportunity to succeed where others have faltered. Tackling the current global debt crisis is not only a moral imperative. In a context of growing climate and geopolitical distress, it is one the biggest threats to global peace and security and financial stability. Without supporting countries to become sustainable, their debts will never be realistically repayable. More

Today’s top storiesRishi Sunak is seeking to convince Unionist politicians in Northern Ireland and Eurosceptic Tory MPs to agree to an outline deal on the Northern Ireland protocol. The Federal Reserve is expected to raise its benchmark interest rate by a quarter of a percentage point, transitioning to a less aggressive pace of rate increases as inflation begins to ease. Russia has rejected US allegations that it is not complying with the New Start treaty, the sole remaining nuclear arms control agreement between the two countries.For up-to-the-minute news updates, visit our live blogGood evening.The European Central Bank is widely expected to announce another sharp rise in interest rates tomorrow as it continues its battle against inflation. New data suggests the ECB may be gaining ground in this fight.Consumer price rises slowed to an annual rate of 8.5 per cent in January, Eurostat’s flash index showed today, down from 9.2 per cent the previous month. This headline figure, the lowest recorded since May, was lower than the 9 per cent expected by economists polled by Reuters, following a significant slowdown in energy inflation. A word of caution, however. These figures do not include data from Germany, which was unavailable at the time of the release due to “technical data processing issues”. Goldman Sachs expects the headline figure to be revised upwards slightly when the German data lands, reports the FT’s financial blog, Alphaville. The positive news on inflation comes in the week it was confirmed the eurozone economy narrowly avoided falling into a recession in the final quarter of 2022. Data released on Tuesday showed that the eurozone economy grew 0.1 per cent in the final three months of 2022, bringing the region’s overall growth last year to 3.5 per cent. John Leiper of Titan Asset Management called it “quite an achievement”. A relatively mild winter, the easing of the energy price shock and generous fiscal support are among the factors that have helped Europe weather the macroeconomic fallout from Russia’s invasion of Ukraine, according to the IMF, which in its latest update forecasts 0.5 per cent growth for the region in 2023. Although lower than the 1.9 per cent growth projected by the Fund in its previous forecast in October, the estimate represents a far more optimistic view than the consensus of a few months ago, when economists and business leaders were warning of a deep recession. Meanwhile, as Andrew Whiffin writes in The Lex Newsletter, European banks posted some of their strongest results in 2022 since the financial crisis. While long-term trends may work to favour US retail lenders, European banks are enjoying the benefits of high interest rates, which have boosted net interest margins, and investor confidence bolstered by greater faith in local regulators.Several considerations, however, will temper European optimism. First, the deceleration in headline inflation belies an unchanged rate of core inflation, which excludes food and energy prices and remains at an all-time high of 5.2 per cent. Widely seen as a better measure of underlying price pressures, persistently high core inflation means the ECB will probably continue to raise borrowing costs aggressively. In a similar vein, the strength of eurozone output and employment figures may be encouraging, but such economic news is not always good news, writes chief economics commentator Martin Wolf. “The stronger economies are, the greater the worry of central banks that inflation will not return to a stable 2 per cent,” Wolf points out. “And so the longer policy is likely to stay tight.” Tight monetary policy is already placing a strain on the housing market, with mortgage demand plummeting at a record pace in January to its lowest level since records began, according to ECB data released on Tuesday. Need to know: UK and Europe economyOnly one major economy will enter recession this year, according to the IMF, which honoured the UK with this unfortunate distinction in its most recent forecast, predicting a 0.5 per cent contraction over the course of the year.Chris Giles, our economics editor, says the easiest way for the UK to raise its growth rate in the short term would be to tackle economic inactivity, as labour force participation has nosedived since the pandemic started. That is far from the only problem plaguing the UK labour market, however, as was made clear today when hundreds of thousands of civil servants, train drivers and teachers co-ordinated to stage the largest strike action since 2011.Industry groups and politicians have warned that UK green industries risk being left behind by the US and EU unless Rishi Sunak’s government can come up with an adequate response to the global “subsidy arms race” for green growth. Meanwhile, the UK has set out plans to regulate the cryptocurrency industry, as it seeks to shore up London’s post-Brexit status as Europe’s leading financial centre. Need to know: Global economyIn the US, the oil and gas boom continues, with unemployment in the sector falling below 2 per cent in December, down from roughly 6 per cent a year ago. Crude production in the Permian basin hit record highs last year, and the state of New Mexico is now producing more oil than the entire country of Mexico south of the border. China and India will together account for half of global GDP growth in 2023, according to the IMF, which raised its expectations for growth in Asia’s largest economies to 5.9 per cent and 7 per cent respectively. India will hope to use some of that growth to supercharge investment in infrastructure and productivity, with the government pledging today to increase capital spending by a third in its final budget before next year’s election. Hong Kong will look forward to a growth rebound this year after a dismal 2022, during which strict Covid restrictions led to its economy shrinking by a more than expected 3.5 per cent.Lebanon has devalued its currency by 90 per cent, but the pound remains far above its black market rate, a reminder of the depth of the economic crisis facing the country. The Banque du Liban, Lebanon’s central bank, said the devaluation was a step towards unifying the country’s multiple exchange rates, a key requirement to unlock a $3bn loan facility from the IMF. Need to know: businessThe US will no longer supply export licences to companies that supply Chinese telecoms giant Huawei, which security officials believe conducts espionage on behalf of Beijing. Japan and the Netherlands have also reached an agreement with the US to restrict exports of chip manufacturing tools to China, as the White House continues its efforts to hamper China’s ability to produce the semiconductors required for certain advanced weapons. With the chip industry facing increasing headwinds, Intel is slashing the pay of its managers and executives as part of its drive to shave $3bn off its operating budget by the end of the year. Shares in Darktrace have fallen significantly this week, after the UK cyber group was accused of irregular accounting practices by short-seller Quintessential Capital Management. Dublin-based financial data group Ion Markets suffered a cyber attack on Tuesday, which affected derivatives that trade on exchanges. Cyber risk, business columnist Helen Thomas argues, is an increasingly costly and lamentably underinsured danger facing companies across the corporate world. The World of WorkThe US National Labor Relations Board has found that Apple violated labour laws on multiple occasions, after an investigation into complaints of former employees concerning workplace harassment and suppression of labour organising. UK conference and events provider Etc Venues has been bought by Convene, its US rival, for about £200mn. Convene is betting that remote working will continue to disrupt the city office market, pushing companies to seek convenient central meeting areas to bring together their staff.Wonder how to get the most out of the introverts on your team? Isabel Berwick, host of the FT’s Working It podcast, speaks to self-described introverts Morra Aarons-Mele and Kesewa Hennessy to find out what we can learn from quiet voices in a loud world. Some good newsResearchers at the University of California San Diego have developed a new injectable biomaterial with potential benefits for the treatment of heart attacks and traumatic brain injuries. The treatment has been shown to reduce inflammation and promote tissue repair in rodent trials, and could be ready to test on human subjects within one or two years, according to the researchers. More

In the 1970s, the UK was known as the “sick man of Europe”. Today it seems to be the sick man of the developed world. The IMF forecast this week that Britain would be the only leading economy to shrink this year. Its gloomy outlook was published, by coincidence, on the third anniversary of the UK’s exit from the EU. The Brexit deal is by no means the only reason for Britain’s underperformance, but it is a factor. Finding ways to soften its impact needs to be part of a broader strategy to rekindle growth.The IMF may be overly pessimistic. But the UK is undoubtedly lagging behind its peers as it suffers the worst of two economic worlds. As in the US, its shrunken post-pandemic workforce has left it with a labour market squeeze. And, like the rest of Europe, Britain is exposed to sky-high energy prices. The disastrous “mini” Budget of Liz Truss’s short premiership led to a rise in borrowing costs which has eased but is still affecting families and businesses.A 2023 recession will compound years of underperformance: the UK is the only major economy that has not regained its pre-Covid size. Productivity growth and business investment were anaemic pre-2016, but few economists dispute that Brexit has exacerbated the UK’s weakness since the referendum.Business investment has stagnated, depressed by political and economic uncertainties and the erection of barriers with Britain’s biggest trade partner. The UK’s post-pandemic recovery in trade has trailed that of other big economies. Newfound regulatory freedoms, and new trade deals with the likes of Australia, cannot offset the damage.The EU exit has also eroded the quality of governance. Successive Conservative governments have wrestled with the contradiction between Brexit purists’ belief that it would free Britain to create a low-tax, small-state economy, and many Leave voters’ for greater government intervention.Boris Johnson, dumping an industrial strategy from his predecessor Theresa May, tried to square the circle by promising to “get Brexit done” while embracing big-state government — till Covid-19 wrecked the public finances. Truss’s bungled lunge for growth through massive unfunded tax cuts in turn repudiated Johnsonism. Rishi Sunak has changed course again. The reversals have led to incoherence in economic policy and exacerbated business reluctance to invest.As polling suggests voters are doing, politicians of all stripes need to acknowledge Brexit’s impact and the urgency of trying to improve on Britain’s bare-bones trade deal with the EU. Resolving the dispute over trading rules with Northern Ireland would be a welcome step. But the UK also needs to address structural factors holding back its growth potential.As a start, the government should replace or extend its super-deduction on capital spending, which expires in April, to boost business investment. The planning system needs transforming, to clear the path for building more on undeveloped land. As well as getting more people back into jobs, including through better childcare support, Britain needs to develop a more agile training and education system. Harnessing the UK’s success at producing start-ups means channelling more investment into innovative firms; a forthcoming cut to R&D tax credits is a step backwards. Driving growth in second-tier cities, partly through decentralisation, will be key to reviving the levelling-up agenda.Business groups labelled Jeremy Hunt’s economic plan outlined last week as “empty”. The chancellor has a further chance to spell out a more ambitious agenda in the March Budget. If he cannot go beyond mere buzzwords, the latest bout of “British disease” will become ever more chronic. More

Lebanon has devalued its currency by 90 per cent as it seeks to address a deep economic crisis, in a move that still leaves the pound far above its parallel black market rate.The Banque du Liban said on Wednesday that it was setting the Lebanese pound, pegged at a fixed rate of L£1,507 to the dollar since 1997, at a new rate of L£15,000. This is still well below the L£60,000 to the dollar where the parallel currency was trading at the time of the central bank announcement. The devaluation could stoke fears of further price rises in a country where the annual inflation rate for 2022 topped 170 per cent, according to official figures. Analysts said it was a costly stop-gap in the absence of wider structural reforms to Lebanon’s troubled economy.“Fundamentally these measures don’t meaningfully address the causes of the crisis, which are the large financial sector losses,” said Mike Azar, a Lebanese economist. “What’s been needed for the past three years is a broader economic recovery plan with a restructuring of the financial system, not another piecemeal measure.”The BdL said the change was a step towards unifying Lebanon’s various exchange rates in an effort to meet the demands set out in a draft deal reached with the IMF last year. But experts cautioned it was unclear how that would be the case: Lebanon has multiple exchange rates that govern depositors’ withdrawals from frozen bank accounts, customs duties, public sector salaries, fuel prices and telecommunications, among others. Nasser Saidi, a former economy minister and ex-deputy central bank governor, called it a continuation of the “failed exchange rate pegging/fixing policy that has generated the biggest financial crisis in history”.The Lebanese pound has slumped since the country went into financial meltdown in 2019, losing more than 97 per cent of its value against the dollar on the parallel market.The finance ministry last September announced it would devalue the pound, but walked back the decision amid criticism that it did not have the necessary authority. Instead the ministry applied new rates to areas within its purview, including customs and tax collection rates.Saidi said that the new L£15,000 rate was “75 per cent below the effective market rate of L£60,000 as well as below the so-called Sayrafa rate of L£38,000”, the latter referring to the central bank’s exchange platform. “This just adds to the multiple exchange rates that lead to severe market distortions.”Although the government reached a draft IMF agreement in April, the deal was contingent upon implementing divisive economic and political reforms, which have yet to be agreed. This has fuelled speculation in Lebanon that the deal might not ever be finalised. Unifying the exchange rates is one of the IMF’s prerequisites to unlock a $3bn loan facility, widely seen as the only way for the country to begin recovering from the crisis and restore confidence in its financial system.“But the measure doesn’t actually unify the exchange rate,” Azar said. “It just created another one and created uncertainty over when and how the banks will be able to cover their foreign currency losses, both contrary to the deal negotiated with the IMF.”

Lebanon’s problems, which the World Bank has called one of the world’s worst economic crises of the past 150 years, have left the majority of people locked out of their deposits and more than three-quarters of the population in poverty. The collapse in the currency has meant most people have been unable to access their dollar savings or have been forced to make withdrawals in pounds at punishingly low rates, in the absence of formal capital control laws to stem financial losses that the government and World Bank put at more than $70bn.Most transactions in Lebanon — from supermarket shopping to phone bills — are now done almost exclusively in cash at the fluctuating parallel market rate. Lebanese use mobile apps to track the fluctuations before making transactions in prices that can change hourly. The desperation has even pushed a handful of people to hold up banks at gunpoint in order to access their own funds. More

PARIS (Reuters) – French railway worker Franck Viger-Brunet says he and his comrades have to count carefully the costs of going on strike to force President Emmanuel Macron to back down on plans to hike the retirement age by two years to 64.”We pay for the days we strike. I have budgeted for the last month to be able to strike for a month (against this reform)… We’ve got to keep going,” the 58-year-old CGT union member said at a march in Paris on Tuesday during a second nationwide strike against the reform.In what could prove a prolonged standoff, unions and their members are seeking to minimise the impact on personal finances already strained by the worst cost of living crisis in decades.For 55-year-old nursery worker Said Bellahecene that meant working on Tuesday morning in order to be able to go on strike in the afternoon to avoid losing a full day of wages.”I’ve got two kids and rent to pay, but I’m ready to lose a few weeks (of pay) and bring the country to a halt rather than lose two years later (under the reform),” he said at the demo.More than 1.2 million people took part in Tuesday’s action, slightly more than in a first show of force on Jan. 19, though firms including state rail operator SNCF and state-controlled electricity group EDF (EPA:EDF) reported fewer workers going on strike.That means keeping up the pressure will be a challenge as the reform rumbles through parliament over the next two months.STRIKE FUNDSWhile unions have so far displayed rare unity, hardline CGT leader Philippe Martinez raised the spectre of rolling strikes despite the financial sacrifice that means for many workers.”The government wants to downplay the outrage, we’ve got to shift up a gear,” Martinez said on France Inter radio on Wednesday.So far unions have tried to space strikes out to minimise wage losses. The next strike is due only on Feb. 7 and unions have also called for nationwide demos on Saturday Feb. 11, which would allow more workers to protest without having pay docked.French unions generally do not have permanent strike funds to help members cope, though some will set up occasional kitties financed by donations for a specific cause.One notable exception is the CFDT, France’s biggest union, whose members’ dues help maintain a “union action” fund that BFM TV reported recently had swollen over the decades to 140 million euros ($152 million).While it is generally used to cover legal fees and compensate workers in local strikes, members are now clamouring for it to help cover lost pay during the pension strikes.”We’re getting a tonne of questions about whether there will be some help,” CFDT head for the public service Mylene Jacquot told Reuters.BROAD OPPOSITIONThe government says the pension overhaul, which includes plans to increase how long workers must pay into the system, is needed to keep it out of the red in the coming years.But unions say the plans represent a brutal rolling back of cherished social rights and their opposition is widely supported by the broader public, opinion polls show.However, even before the cost of living crisis, French unions have struggled to resist government reform plans in the decades since massive strikes in 1995 successfully forced a conservative government to drop a pension overhaul.Nonetheless, strikes can still yield results as the energy sector saw at the end of last year when unions won wage increases with a series of work stoppages.That sector is now leading calls for more strikes with the head of the CGT’s energy branch, Fabrice Coudour, saying a new round was set for Feb. 6 to 8.”We’re motivated to go all the way until (the reform) is dropped,” Coudour said.($1 = 0.9182 euros) More

NEW DELHI (Reuters) – India announced on Wednesday one of its biggest ever increases in capital spending for the next fiscal year to create jobs but targeted a narrower fiscal deficit in its last full budget ahead of a parliamentary election due in 2024.Prime Minister Narendra Modi’s party has been under pressure to create jobs in the populous country where many have struggled to find employment, although the economy is now one of the world’s fastest-growing.”After a subdued period of the pandemic, private investments are growing again,” Finance Minister Nirmala Sitharaman said as she presented the 2023/24 budget in parliament.”The budget makes the need once again to ramp up the virtuous cycle of investment and job creation. Capital investment is being increased steeply for the third year in a row by 33% to 10 trillion rupees.” GRAPHIC: Where the money will go?- https://www.reuters.com/graphics/INDIA-BUDGET/mopaklkedpa/chart_eikon.jpgThe capital spending increase to about $122.3 billion, which would amount to 3.3% of gross domestic product (GDP), will be the biggest such jump after an increase of more than 37% between 2020/21 and 2021/22. GRAPHIC: India’s capital expenditure to increase by 33%- https://www.reuters.com/graphics/INDIA-BUDGET/akveqmqydvr/chart.png Total spending will rise 7.5% to 45.03 trillion rupees ($549.51 billion) in the next fiscal year starting on April 1.Sitharaman said the government would target a fiscal deficit of 5.9% of GDP for 2023/24 compared with 6.4% for the current fiscal year and slightly lower than a Reuters poll of 6%. The aim is to lower the deficit to 4.5% by 2025/26.GRAPHIC: India’s fiscal deficit-https://www.reuters.com/graphics/INDIA-ECONOMY/FISCALDEFICIT/znvnbzzzkvl/chart_eikon.jpgSTEADY ‘MACRO BOAT’Brokerage Nomura said the budget “prudently pushes for growth, without rocking the macro boat”.”In the event, the government has presented a good budget. It has pushed for growth via public capex and continued on the path towards fiscal consolidation, without offering much in terms of outright populism.”Capital Economics said the “absence of a fiscal blowout”, a recent drop in inflation and signs of moderating growth could convince India’s central bank to slow the pace of rate hikes next week.It said there was still a chance of fiscal slippage as campaigning kicks off for the election, in which Modi is widely projected to win a third straight term.The finance ministry’s annual Economic Survey, released on Tuesday, forecast the economy could grow 6% to 6.8% next fiscal year, down from 7% projected for the current year, while warning about the impact of cooling global demand on exports.Sitharaman said India’s economy was “on the right track, and despite a time of challenges, heading towards a bright future”. GRAPHIC: India real GDP growth forecast- https://www.reuters.com/graphics/INDIA-ECONOMY/GDP/akpeqmzznpr/india-real-gdp-growth.jpg Her deficit plan will be aided by a 28% cut in subsidies on food, fertiliser and petroleum for the next fiscal year at 3.75 trillion rupees. The government cut spending on a key rural jobs guarantee programme to 600 billion rupees – the smallest in more than five years – from 894 billion rupees for this fiscal year.GRAPHIC: India’s gross market borrowings- https://www.reuters.com/graphics/INDIA-BUDGET/zjpqjwjgnvx/chart.pngGRAPHIC: India budget cuts expenditure on major subsidies- https://www.reuters.com/graphics/INDIA-BUDGET/klvygdgxgvg/chart.pngThe government’s gross market borrowing is estimated to rise about 9% to 15.43 trillion rupees next fiscal year. CONSTRAINTSMoody’s (NYSE:MCO) Investors Service said the narrower fiscal deficit projection pointed to the government’s commitment to longer-term fiscal sustainability, but that a “high debt burden and weak debt affordability remain key constraints that offset India’s fundamental strengths”.Among other moves to stimulate consumption, the surcharge on annual income above 50 million rupees was cut to 25% from 37%.Indian shares reversed earlier gains to close lower on Wednesday, led by a fall in insurance companies after the budget proposed to limit tax exemptions for insurance proceeds, while Adani Group shares tumbled again as it struggles to repel concerns raised by a U.S. short seller.Since taking office in 2014, Modi has ramped up capital spending including on roads and energy, while wooing investors through lower tax rates and labour reforms, and offering subsidies to poor households to clinch their political support.A lack of jobs for young people, and meagre wages for those who do find work, has been one of the main criticisms of Modi.Sitharaman also said the government was allocating 350 billion rupees for energy transition, as Modi focuses on green hydrogen and other cleaner fuels to meet India’s climate goals. ($1 = 81.7725 Indian rupees) More