Don’t expect commodities prices to rise soon, warns UNCTAD

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Photo courtesy - Global Pulse Confederation

 

Busts usually last longer than booms and there should be no assumption that the low commodities prices environment will change any time soon, the UN trade agency has said.

UNCTAD Deputy General Secretary Joakim Reiter told a meeting on commodities and development in Paris recently that while prices have gone up they could easily dip again, and that poses deep challenges for developing economies dependent on commodities.

“Spring may still be a long way off,” he warned.

There were governments that did not build necessary firewalls as they inadequately anticipated the reversal of economic fortunes after a decade-long boom. In such countries macroeconomic symptoms such as widening fiscal deficits, eroding currencies, and looming sovereign risk were increasingly acute, he said.

Reiter, however, urged developing countries to not let a serious crisis go waste.

“For years, many commodity-dependent developing countries lost out on the opportunity to harness the commodity boom. Most of them did not succeed to accelerate structural transformation and to build productive capacities,” he said, adding that countries that did not make sufficient reforms during the boom years will have little choice but to implement them now.

The task, however, won’t be easy because the borrowing costs for commodity-dependent countries are high – despite the historically low interest rates that prevail in the developed world.

According to Reiter, there is a broad consensus, or at least convergence, on the reforms needed in commodity-dependent developing countries. But a consensus in theory is not the same as a consensus in practice.

With shrinking revenues from commodities, governments will have to make hard choices about budget priorities. “But what sound leadership demands may be different from what political expediency requires – especially when a government is under stress,” he said.

Reiter said the list of requirements is long: They need to diversify away from commodities, promote productivity growth and private sector development and cut trade cost.

“They need to become leaner and more efficient in their administration while protecting social spending. They need to borrow more responsibly and better manage the volatility of markets. And they need to adopt the right accompanying policies to realise trade’s potential for sustainable development.”

 

 

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