Stuck in the middle? Indebted nations plot path to growth amid global trade upheaval

Faced with mounting debt and economic stagnation, middle-income countries have issued a call for financial reform, sustainable investment, and a roadmap to escape the so-called “middle-income trap,” at a UN-backed international conference held in Manila, Philippines, which concluded on Tuesday. The High-Level Conference of Middle-Income Countries (MICs), held on 28 and 29 April, was attended by senior representatives from 24 MICs, many of which are highly indebted, leaving them little room for spending on developing their economies.

Since 2000, only 27 countries transitioned from middle income to high-income status, and many have experienced reversals back to middle-income level: 11 nations switched back and forth at least once before reaching their current high-income status.

Around 60 per cent of the world's poor live in MICs, indicating that fighting poverty is not achievable by focusing only on the lowest income nations. 

“The transition of middle-income countries to high-income status while meeting sustainable development ambitions calls for the bolstering of financing for development,” said Armida Salsiah Alisjahbana, Executive Secretary of the UN Economic and Social Commission for Asia and the Pacific (ESCAP) at the opening of the event. 

“This calls for domestic policy reforms aimed at expanding fiscal space, maintaining debt sustainability and channeling resources towards productive investments.”

The Makati Declaration on Middle-Income Countries calls for the UN to support MICs in accessing development financing, including via innovative financing mechanisms, and to provide support in a number of areas, ranging from programmes and initiatives to mitigate and adapt to the climate crisis to digital transformation and making countries more resilient to global shocks (see full list of measures below). 

“We recognise that middle-income countries experience frequent growth slowdowns, and if left unaddressed, this loss of economic dynamism can cause countries to get stuck in what is referred to as the “middle-income trap,” the Declaration states. 

“We stress that middle-income countries continue to face specific challenges related to, inter alia, high levels of inequalities, low growth, persistent poverty, unemployment, loss of biodiversity, the adverse effects of disaster risks and climate change, reliance on primary commodity exports, high levels of external debt and the volatility of exchange rates and capital flows, and digital divide.”

MICs will strengthen cooperation among themselves and offer increasing resources under technical cooperation between countries in the global South, which could become particularly important given the recent reduction in development support from traditional donors of the global North.

“We are re-moulding traditional development partnerships as more MICs, including the Philippines, increase resources for South-South and technical cooperation,” said Enrique Manalo, Secretary for Foreign Affairs of the Philippines at the event. 

“This is a trend that, if scaled up, could potentially result in game-changing dividends for the global development system.”

The Like-Minded Group of MICs are “as champions of multilateralism,” he added. “Carving a steady path for all middle-income countries behooves us to support strongly an international rules-based order underpinned by equity and justice.” 

The Makati Declaration on Middle-Income Countries

The list of measures adopted at the High-Level Conference of Middle-Income Countries:

• Productive capacity development
• Human and social development
• Environment and climate change
• Science, technology and innovation and digital transformation
• Inclusive development cooperation
• Global multi-stakeholder partnerships
• South-South and Triangular cooperation (SSTC)
• Measures for sustainable development beyond GDP
• Building resilience to global shocks and multidimensional crisis.

This article was first published by UN News.