The changing role of the Global South in the global economy

Source: The post the changing role of the Global South in the global economy has been created, based on the article “Developing countries can spur global growth but they need support” published in “Indian express” on 20th June 2024

UPSC Syllabus Topic: GS Paper3- Economy -growth, and development

Context: This article discusses the changing role of the Global South in the global economy. It highlights the need for better financial support, digital infrastructure, and climate financing to boost growth. It also suggests reforms in the global financial system to address these challenges.

For detailed information on India and Global South read this article here

What is the Current Economic Outlook?

1. The current global economic growth forecast by the World Bank and IMF is steady at around 3 percent.
2. This growth rate is the lowest in decades.
3. The forecasts indicate that nearly three-fourths of global growth in the next two to three decades will originate from middle- and low-income countries, particularly from Asia.

How Have Recent Global Events Affected Growth?

1. Globalization and Social Safety Nets: As globalization deepened, social safety nets did not keep pace, impacting social cohesion and support for multilateral systems.
2. Pandemic Impact: COVID-19 disrupted markets, trade, and supply chains, stalling global growth. This was a major setback from the usual expansion beneficial to global growth.
3. Geopolitical Tensions: The war in Ukraine and rising strategic competitions have led to policy-driven fragmentation, worsening global cooperation and economic stability.

What Challenges Does the Global South Face?

1. High Capital Costs and Short Tenures: The Global South struggles because it attracts capital at prohibitive rates and for short durations, making sustainable financing a key barrier to growth.
2. Inadequate Financial Systems: The current international financial architecture is described as ill-suited to support the growth potential of the Global South, emphasizing the need for change.
3. Vulnerability to Global Headwinds: The Global South is most affected by various global challenges such as climate change, cost of living crises, and unmet Sustainable Development Goals (SDGs), which impact its economic stability more severely than more developed regions.
4. Technological Disparities: Countries lacking digital public infrastructure (DPI) struggled during the pandemic, while those with effective DPI could provide emergency services, highlighting the need for digital transformation to support growth and resilience.

What should be done?

To support global growth, three key actions are needed.

First, improve climate financing by leveraging public and multilateral resources and focusing on capital markets. For example, only 1% of publicly listed companies are responsible for 40% of greenhouse gas emissions.

Second, enhance liquidity provisions for Global South. Strengthening the IMF can help provide significant liquidity beyond current levels, addressing the lack of US dollar swap lines for countries like India and Indonesia.

Third, develop a global digital public infrastructure. Effective DPIs can support emergency responses, health, education, and commerce, as shown during the pandemic.

These measures will address current challenges and promote sustainable growth in the Global South and beyond.

Question for practice:

Discuss the challenges faced by the Global South in supporting the global economy.