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Four steps towards a more sustainable global economy

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10 January 2018, New York

As headwinds from the recent crises subside and global demand, trade and investment pick up speed, governments can finally move out of crisis mode and steer the world in a more sustainable direction. But what exactly should they do? UN DESA’s World Economic Situation and Prospects Monthly Briefing identifies four key areas.

1. Diversify economies

Development strategies are not implemented overnight. The Sustainable Development Goals (SDGs) are a 15-year global endeavour and the African Union’s Agenda 2063 spans half a century. Planning for such distant horizons requires a stable source of financing. Many developing countries that depend on only a few commodities are deprived of that luxury. Without diversification, they are highly susceptible to price shocks and shifts in investment cycles.

The current favourable economic winds open a window of opportunity for countries to restructure and broaden their source of revenue through fiscal reform. The Gulf Cooperation Council countries, for example, are trying to break their dependence on oil through a planned introduction of value-added tax.

2. Stem the rise of inequalities

In 2017, the International Monetary Fund estimated that around 10 per cent of income in advanced economies went to just 1 per cent of the population. Rising inequalities not only disrupts social cohesion, but also threatens long-term growth and hampers progress on the SDGs.

To sustain economic expansion and move forward on the Global Goals, countries will have to urgently raise the living standards of the most deprived and address the inequality of opportunities in the long term. These investments will not only improve the quality of growth but increase its longer-term potential.

Meanwhile, the US ended 2017 by adopting a sweeping tax reform, which is expected to slightly increase GDP growth in 2018 but also contribute to a further rise in after-tax wage inequality.

3. Make finance sustainable

The cost of achieving the universally agreed SDGs is estimated at several trillion dollars every year through 2030, with public funds able to cover no more than $1 trillion per year. The need for the private sector to chip in is obvious, but a multi-trillion-dollar gap can hardly be covered by charitable side-projects. A fundamental shift is required in the way business is done.

The world’s financial and capital markets handle in excess of $300 trillion in assets. The world needs a new financial architecture that would gradually shift these trillions away from transactions focused on shortterm profits and towards long-term investments in research and development, machinery and equipment, infrastructure, human capital and healthcare.

All countries have the power to support this process, including through public investments that crowd-in private investments, public-private partnerships, better institutional capacities, regulatory changes and structural reforms.

4. Improve institutions

Weak governance and political instability remain fundamental obstacles to achieving the SDGs and economic growth in many parts of the world. In 2017, capital started flowing back to the developing countries, but it may pull out again at the very first sign of trouble, unless states can improve their legal institutions, administrative capacities, transparency and business environment.


Source:UNITED NATIONS DEPARTMENT OF ECONOMIC AND SOCIAL AFFAIRS