Volatile financial markets have created rumblings in developing countries and there is a need to have a fresh policy thinking to face the challenges and enhance gains, an UNCTAD report said today.
Overall, growth of developing countries is forecast to decline to around 4 per cent in 2015, continuing a slowdown that began in 2011, said the Trade and Development Report 2015 released by Union Nations Conference on Trade and Development.
For much of the last decade, many developing countries experienced strong growth and improving current accounts as a promise of higher returns for investment in these countries was an attractive alternative, it said.
These capital inflows, however, generated pressures for exchange rate appreciation. More open capital accounts also meant governments had to conduct monetary and fiscal policy with an eye to the preferences of international finance, it said.
"A monetary and fiscal policy mix aimed at better managing private capital flows, in particular those of an unstable or speculative nature, and their macroeconomic effects, would help developing countries to face the challenges and to enhance the gains made overall from integrating into global financial markets," UNCTAD said.
It said the recent turmoil has added urgency to adopting such measures.
In a separate release, UNCTAD said the rich countries need to increase public expenditure, raise wages and boost demand in order to revive their economies and put them on a stable growth path.
The report said that the global economy for 2015 is expected to remain more or less unchanged from last year's 2.5 per cent.
The failure of growth in many developed countries to regain its pre-crisis momentum, despite several years of accommodative monetary policy, has created what UNCTAD calls a "new abnormal".
"Eight years following the financial crisis, the world has clearly not found how to shift gears for global inclusive and sustainable economic development," UNCTAD Secretary General Mukhisa Kituyi said in a statement.
