May impact food insecurity, poverty; scaling up climate financing critical to help developing countries cope with climate impact
Global inflation is estimated to have dropped to 5.7 per cent in 2023 and a continued decrease in inflation to 3.9 per cent has been projected for 2024, according to a recent United Nations report. However, food inflation is expected to go up this year too, which may leave many poorer and food insecure.
While core inflation has been moderating since early 2023, particularly in several Latin American and East Asian economies, food inflation remains elevated. Food inflation increased in the second half of 2023, especially in Africa, South Asia and Western Asia.
The decline in inflation was attributed to ongoing moderation in international commodity prices and a decrease in demand due to monetary tightening by the UN. However, food insecurity in developing nations has been significantly exacerbated by high food prices, the report said.
At least 238 million people experienced acute food insecurity in 2023 — an increase of 21.6 million people from the previous year, as per estimates in the UN’ World Economic Situation and Prospects 2024, launched January 4, 2024.
Read more: 2023 in a blink: How food inflation affected India and the world this year
Headline inflation measures the total inflation within an economy, which includes commodities like food and energy prices.
Weak local currencies, climate-related shocks and limited pass-through from international prices to local prices will be the causes of this ongoing increase in food inflation.
The resurgence of the El Nino weather phenomenon has the potential to significantly influence climate patterns, giving rise to the likelihood of both excessive and insufficient precipitation in numerous regions.
Many countries in Africa, South Asia and Western Asia will continue to experience elevated food price inflation, the UN projected. There will be significant increases in food prices in several African, South Asian, and Western Asian nations.
Food inflation disproportionately affects the poorest households, who spend a larger share of their income on food. For example, in low-income African and South Asian regions, spending on food accounted for more than 40 per cent and 36 per cent of total consumer expenditures in 2022, respectively.
In comparison, the developed nations spent close to 15 per cent, the UN report stated, citing estimates by United States Department of Agriculture Economic Research.
The inflationary trend in developing nations has made poverty worse, the report added. Poverty rates in low-income nations continued to be significantly higher than those prior to the pandemic, especially in those in Africa and Western Asia.
Global economic growth is expected to trend below the 3 per cent growth rate observed prior to the pandemic, slowing from an estimated 2.7 per cent in 2023 to 2.4 per cent in 2024, the report added.
It is anticipated that many low-income and vulnerable nations would experience only moderate growth in the upcoming years, which will make a complete recovery of pandemic losses increasingly difficult.
The reasons, according to the report, are persistently high interest rates, escalating geopolitical conflicts, slow international trade and an increase in climate-related calamities.
In 2023, the public debt of low-income nations hit all-time highs. The potential for an extended period of elevated borrowing costs and more restrictive credit conditions poses significant challenges for a global economy that is already burdened by substantial debt.
At the midpoint of the implementation of the 2030 Agenda for Sustainable Development, the world remains vulnerable to disruptive shocks, including the climate crisis and escalating geopolitical conflicts and wars.
The economic growth prospects remain weak, especially for Africa, which is vulnerable to climate-impacts, the report said. Climate impacts, including extreme weather, will hurt tourist and agricultural productivity in the region. The geopolitical conflicts and wars will continue to negatively impact several African subregions, particularly the Sahel and North Africa.
Read more: Acute food insecurity: 4 African countries remain at highest concern level
India’s growth rate is predicted to be 6.2 per cent in 2024, which is a little less than the 6.3 per cent prediction for 2023. The country belongs to the South Asia group, where a number of countries could see negative economic growth due to tighter budgetary and financial constraints, problems with their balance of payments and El Nino.
The economic prospects pose challenges when the world needs increased investment, not only to resuscitate growth but also to fight climate change and accelerate progress towards the UN-mandated Sustainable Development Goals (SDG).
More funds, including climate finance, needed for developing nations
Addressing international financing and debt sustainability issues is key to achieving the SDGs, easing financial constraints, reducing debt distress and increasing the volume of financing flows to developing economies, the report said.
The multilateral trading system should be revitalised, it suggested. It called for reforming development finance, the global financial architecture and addressing the debt sustainability challenges of low- and middle-income countries.
When climate finance is adding to the debt burden of climate-vulnerable poor countries, these recommendations demand the attention of a diverse group of stakeholders who will be attending the upcoming World Economic Forum (WEF) to be held in Davos, Switzerland, from January 15-19, 2024.
Achieving cooperation in a fractured world and developing a long-term systemic approach to achieve the objectives of a carbon-neutral world by 2050 are key themes of the WEF this year.
Read more: Ultra-processed foods lead to $7 trillion in hidden health, environment costs globally: Report
According to estimates in the report, $150 trillion in investment will be needed by 2050 for energy transition technologies and infrastructure, with $5.3 trillion required annually to transform the global energy sector alone.
However, climate finance remains far below the required level of green investment to limit the temperature rise to 1.5 degrees Celsius above pre-industrial levels. So, the report has stressed the massive scaling up of climate financing.
It has also called for the effective operationalisation of the Loss and Damage Fund and the scaling up of financing commitments made in connection with this Fund. This will be critical for helping vulnerable countries cope with the impacts of climate disasters.
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