High-level Ministerial Conference on Middle Income Countries: High-level Panel on challenges and opportunities of Middle-income countries

Excellencies,

Dear fellow panelists,

Ladies and gentlemen,

I am very glad to be part of this important Conference. I first want to warmly thank the government of Morocco for hosting it and inviting me.

The Conference focuses on a group of countries that often does not receive the needed attention.

Yet, it is the home of about 75% of the world’s population.

It is a very diverse group, but only very few middle-income countries have managed to catch up with advanced economies. In fact, over the last 25 years, some middle-income countries became poorer in terms of income per capita.

For many of these countries, converging with advanced nations remains decades away. Even if they replicated the stellar performance of an economy such as the Republic of Korea.

The lack of catch-up is of much concern.

Sustaining structural transformation and economic growth is increasingly challenging as countries advance. Increasing productivity is easier at the early stages of development, as countries can shift workers from underemployment in agriculture to export-oriented urban manufacturing.

As an economy grows, the pool of underemployed rural labour decreases. To move up the ladder, developing economies must then acquire capabilities to develop new products.

This implies a critical transition: From relying on imported technology to indigenous innovation.

But it requires a great deal of institutional capacity. For many countries, this has been an enormous challenge. Many get stuck in the so-called middle-income trap.

Yet, some countries have succeeded.

There are remarkable examples in East Asia. They were successful in developing new production and export capacity by building on skills and capacities from existing industries. They identified sectors that were sufficiently close to existing industries and capabilities. And then they defied the static comparative advantage. They moved from what they were producing to products they were actually capable of producing. This allowed a systematic transition towards more sophisticated and higher value-added activities, such as steel or electronics.

At the heart of these success stories were targeted industrial policies. While such policies became out of fashion a few years ago, there is renewed interest in them, and for good reasons.  I want to highlight two points in this regard:

My first point is about the fiscal space that industrial policy requires but is constrained in many middle-income countries.

Fiscal space in these countries was already tight prior to COVID-19. With the pandemic and the measures implemented to combat the crisis, debt in many countries soared. This, combined with a hike in interest rates, resulted in an increasing debt burden.

It is a serious issue. Today, 3.3 billion people live in countries that spend more on debt than on either health or education. And most of these people live in middle income countries.

In lower-middle-income countries, the situation became particularly challenging as they had a rising share of private creditors in public and publicly guaranteed external debt. It is precisely the spreads on their bonds that saw the largest increase.

But the debt situation is part of a structural problem.

There is simply not enough finance.

The international financial architecture is not keeping pace with the challenges of our time. Today, the World Bank is a fifth of the size it was in the 1960s relative to world GDP. In crises, the IMF can provide liquidity in a year what rich country Central Banks can print in a day.

The current system constrains access of developing countries to development finance and pushes them to borrow from more expensive sources. This increases their vulnerability.

Abrupt changes in global financial conditions or sudden currency devaluations can dramatically increase the cost of servicing debt, reducing available funds for development.

And middle-income countries cannot find debt relief through the Common Framework of G20 countries, as they are not eligible.

That’s why the UN Secretary-General called for a “radical transformation” of the global financial architecture.

UNCTAD fully supports the call for a SDG Stimulus of at least 500 billion US dollars a year.

We need affordable, long-term finance for investment in countries. Re-capitalizing multilateral development banks offers a good avenue.

We also need an effective debt-relief mechanism that supports payment suspensions, longer lending terms, and lower rates, as well as a deep reform of the global financial architecture.

And the debt problem also constrains the ability of countries to combat and adapt to the climate crisis.

This brings me to my second point: Industrial policy needs to boost the energy transition.

Industrial policies can play a key role in pushing for a green transformation and phasing out of carbon-heavy sectors and “brown firms”. This requires coordinated changes within firms and across value chains.

It also requires developing countries to mobilize significant financial resources and ensure fast access to green technologies.

UNCTAD has been a strong advocate for facilitating technology transfer.

The energy transition cannot happen without broad access to green technologies. And it is our joint interest that this happens fast and everywhere.

We are meeting in a country that has been an example of investing in the green transition. Morocco hosts one of the largest wind farms in Africa, and has the potential to become a key exporter of solar energy.

There is immense potential of renewable energies and the energy transition in middle income countries. And many of these countries have shown their capacity to transform and become key players in global value chains.

Ladies and gentlemen,

Middle income countries need the attention and support of the international community.

They are still the home of millions of the poor, face severe constraints in access to funding, and often remain outside the core of donor portfolios. And this despite their exposure to climate change.

But if we are committed to a world of shared prosperity, these countries need our support.

UNCTAD and Morocco have partnered on many fronts. I can assure you that UNCTAD will remain a dedicated partner for all middle income countries to accompany them in their transformation journeys.

Thank you.