In many low- and middle-income countries, inequality is high and rising
In many low- and middle-income countries, inequality is high and rising
In this week’s Bulletin, we’ve analysed World Bank data and found worrying trends in global inequality. We also look at how the debt crisis is making it worse.
Textile workers on their way to home during lunch break. Dhaka, Bangladesh. Photo: Fabeha Monir/Oxfam.
Colonialism redux? Over the last three decades up until 2020, global inequality (the gap between rich countries and the rest of the world) gradually decreased, albeit slowly. Unfortunately, the COVID-19 pandemic reversed this trend, and global inequality increased by the single largest margin since World War 2. Rich countries are now pulling away from everyone else.
Source: World Bank.
The great inequality boomerang. Looking ahead, it is hard to tell what will happen. However, given a series of structural factors, the likelihood of global inequality returning to its downward trajectory is not high. Andy Sumner and his colleagues forecast that an inequality “boomerang” will happen near end-2020s or early-2030s, and this would require new policies to combat inequality in the future.
Source: Sumner et al.
The rich-poor divide is high or growing in a majority of countries. Sumner’s scenarios assume that within-country inequality stays static. However, even before the pandemic, a host of countries were experiencing a rise in within-country inequality. Since 2020, inflation, food insecurity, conflicts, climate breakdown, and costly public debts have only worsened this inequality crisis. As always, the people living in poverty and in poorer countries are withstanding the worst of these crises.
Source: World Bank.
Oxfam recently found that income inequality is high or increasing in 60 percent of low- and middle-income countries receiving grants or loans from the International Monetary Fund (IMF) or the World Bank (measured by Gini). This means that real people struggling to make ends meet are being left behind, while a handful gain more economic and political power.
The situation is dire in the world’s poorest countries. In Africa, the second most unequal region, two-thirds of countries are grappling with high or rising inequality. The continent is home to over half of the world's most unequal countries. Zambia, a country crippled by debt payments owed to rich banks in the Global North, is the third most unequal country in the world. Inequality in Zambia has gone up by about seven percent since 2010.
Deadly debts. Many poorer countries have become net lenders to rich governments and their richest people. The rising cost of debt servicing, which is at a two-decade high, is exacerbating the debt crisis and leading to cuts in investment in social sectors, like healthcare and education.
Oxfam's calculations show that in 2021, about three billion people in low- and lower-middle-income countries (equivalent to three-quarters of the population) lived in countries where spending on public debt interests exceeded spending on healthcare. Let’s take another look at Zambia: debt servicing captures nearly two-thirds of government expenditure, while just 10 percent goes to public health.
Source: Government Spending Watch.
Rich governments advocate for austerity measures in poorer countries, who are already struggling to provide basic services to their people. They do this through institutions they control, such as the IMF. This systemic injustice perpetuates inequality and suffering.
High borrowing costs on international markets have forced many low- and lower-middle-income countries to turn to domestic markets, crowding out private borrowing. Interest rates on domestic debts are normally steeper than those on international markets, and they have gone up dramatically over the last three years.
Apart from narrowing governments’ social spending power, this is severely affecting households, small and medium-sized businesses, and hampering the creation of decent jobs.
Time for action is now, if not yesterday. Faced with a narrowing fiscal space, many poorer countries have resorted to misguided austerity policies, which are often a condition for obtaining IMF support. These include budget cuts, privatization of public entities, and "broadening the tax base," which often means higher and more indirect taxes on people living in poverty.
Low- and lower-middle-income countries urgently need debt restructuring and, where necessary, debt cancellation. That would be the first step to helping these countries invest more in inequality-busting policies, like education and healthcare for all.
Something to read and listen to
Read an open letter signed by 300+ world leaders, scientists, people living with HIV, artists and activists urging Gilead Sciences, Inc. to share new lifesaving HIV medicine with low- and middle-income countries. You can also listen to insights about the letter via BBC Radio.
Listen to US Senator Bernie Sanders’ speech about extreme inequality, ending global oligarchy ―and about Oxfam!
Read Project Syndicate’s Big Question, where they ask Mehrsa Baradaran, Anne O. Krueger, Mariana Mazzucato, Dani Rodrik, Joseph E. Stiglitz, and Michael R. Strain whether the neoliberal era is ending ―and if so, what will follow it.
Read Luke Goldstein’s brilliant article about how The Economist has channeled the concerns of elites for decades.