Emerging economies could see the gains they’ve made over recent decades unravel, with economic, social and political consequences for the rest of the world, according to a senior Singaporean official.
The warning from Tharman Shanmugaratnam, senior minister and economic adviser to Singapore’s prime minister, comes as the coronavirus pandemic has sent the global economy spiraling into its worst crisis since the Great Depression.
“When we think of the future of the world economy, it’s fundamentally about whether the emerging world is going to emerge or whether it’s going to submerge,” Tharman told an online conference Thursday organized by DBS Group Holdings Ltd.
“Everything from forced migration as well as the export of political extremism will become a reality if we see limited growth, and large numbers of people becoming unemployed, either formally or informally,” Tharman said. “Consequences will be faced everywhere in the world.”
To avoid such a scenario, multilateral institutions such as the International Monetary Fund will need to drive the economic response to the pandemic, he said.
The World Bank last month forecast emerging markets’ output to shrink for the first time in at least six decades. The lender warned that the pandemic and worldwide recession will lead to increasing poverty in less-developed nations, as well as higher debt burdens.
The key focus of multilateral institutions and nations collectively is “how do we avoid the emerging world becoming a submerging world,because it’s going to affect the whole world,” Tharman said.
The Group of 20 leading economies has said it will decide later this year whether to extend the current suspension of debt payments for the poorest countries.
Speaking on the same panel, former Indian central banker Raghuram Rajan warned that many emerging countries will see the proportion of government debt to gross domestic product “skyrocket.”
Growth in these countries will have to be driven by external demand, and governments will have to think sensibly about the costs that the financial sector will have to bear, he said.
“The last thing you want, more than a corporate sector crisis, is a financial sector crisis,” he said.