Global Imbalances and Poverty Challenges for the World Economy

Question: Discuss about the Global Imbalances and Povertyfor Challenges for the World Economy. Answer: Background The reflective study analyses the perspective of the writer regarding the issue of global imbalances and poverty raised by International monetary fund. This paper analyses a remarks made by IMF director Rodrigo de Rato y Figaredo (Imf.org 2015). As per the goal of the United Nations, poverty is the important global issue still in twenty first century. This paper focuses on the challenges, transition in thinking, process against poverty are discussed. DIEP strategy is used to analyses and evaluate the issues related to global poverty considering different aspects of economy such as both micro and macro economic factors. Description As I have studied in the IMF paper that global imbalances in present context refers to the current account deficit, substantial gap in growth performance, slowdown in global growth rate, increasing level of debt, issues of structural reform in European economy. On the other hand, poverty is associated with the aspects such as child mortality, access to safe drinking water, enrolment in primary education (World Economic Forum 2016). The problem in my view is that policies of developed and developing countries are not the same due to differences in economic and political stricture. Therefore, attaining millennium development goal set by UN is at different rate and different ways in various global economies in order to reduce social and economic inequalities. Global imbalances have relation with global aggregate demand and supply as economies are integrated financially and with businesses. Global financial crisis had the root in the sub prime mortgage rate market in US, however, it spilt over across major developed ad developed economies of the world due to technological advancement in the financial sector and inter linkage among economies. Consequently the effect of financial crisis affected the banking system, credit opportunity, growth rate of the economy, investment and unemployment and further standard of living of people of different economies. As highlighted by World Bank, countries such as US has current account deficit, on the other hand, oil exporting countries such as Russia, Saudi Arabia, Japan, China have current account surplus (Imf.org 2015). Current account deficit creates external indebtedness and current value fluctuation. Current account deficit or surplus has impact on domestic savings and investment and in turn domest ic demand. Changes in economic structure due to changes in rate of investment ahs impact of welfare of regional economy and poverty. Interpretation While reviewing the issues of poverty I studied that a article of World economic Forum has highlighted that some analysts think that poverty is inevitable for economic advancement since one sector expand by sacrificing growth of other sector of the economy (weforum.org 2016). Poverty is not only the hunger or homelessness, but is the state of life based on income level and access of basic amenities. According to the World Bank report 2013, I have studied that 10.7% of the world population live on less than $1.90 per day (Worldbank.org 2017). Features of global poverty is still challenging as people living in remote areas still have no access of clean drinking water, healthcare facility, electricity, safe water and other critical services. I feel that frequent economic and financial shock, food insecurity, climate change are global issues that are detrimental for removing poverty. As stated by Altmann et al. (2013), poverty is a state when people lack financial and other necessary resources. In order to avail financial resources, the financial market needs reform to facilitate access of credit to the vulnerable section of people. It has been seen that regional income disparities in global economy is the cause of presence of poverty. Evaluation Global imbalances create several causes that restrict the removal of poverty. As studied in the development economics, poverty should reduce with the economic growth as per capita income is likely to rise. However, it has been seen that due to having disparities in the regional economies, national wealth are not distributed equally among all the communities of the society. Countries engaged in the civil war need to spend maximum portion of the government budget in defence. Therefore, disparities in geographical position are also a cause of differences in poverty rate. These countries thus can contribute little proportion for community development or poverty alleviation. War causes loss of human life, destruction of infrastructure, creates violence. Therefore, it is difficult for the country to invest in economic development of human capital formation (World Economic Forum 2016). Rosenstein Rodan suggested the big push theory for economic development that states that massive investment is required for the growth of the backward economies (Altmann et al. 2013). However, big push theory stressed on planned industrialisation in the economy to create job opportunity and growth of per capital income. Balanced growth of different sector may improve the economic status. When I understand from the analysis that country with current account deficit may have debt burden as expense is greater than income. Therefore, in order to reduce the deficit, government may cut domestic expense such as social benefits, social investment and may increases public debt. People living under abject poverty are major sufferer of this policy. Decrease in government spending has negative impact on the per capita income and aggregate demand of the economy. Consequently the economy can move into recession period to have severe impact on poverty and social inequality. I have studied that there is difference in the measurement process of poverty, incidence of poverty, formulation of monetary index, purchasing power comparison. Therefore, true picture of poverty is not always reflected. The Gini coefficient reflects the inequality in different nations. Plan As suggested in the UN development report highlighted by The Guardian, international trade can be a key factor to fight against regional disparities and poverty (McVeigh 2013). National and international aid and development projects to invest in school, health clinics, housing, social infrastructure and improve access of drinking water can be solution for reducing the extent of global poverty. The Multidimensional poverty index includes nutrition, child mortality, mean years of schooling, enrolment in primary schooling, availability of cooking fuel, water and sanitation facility, electricity, assets and covered floor. Countries such as Ghana, Tanzania, Cambodia, and Bolivia, where people still live under abject poverty need greater assistance from developed countries with higher growth rate. Capital can be remitted to those countries via trade to increases capital inflows, which can be invested in structural adjustment. Therefore, in my view, despite having global imbalances, greater integration and improved bilateral trade relations among developed and emerging nations can resolve the problem of global poverty. Positive effect of global poverty reduction may bring balance in global economy. References Altmann, M., Eisenreich, S., Lehner, D., Moser, S., Neidl, T., Rscher, V. and Vogeler, T., 2013. Global inequality and poverty in perspectives of geography.Multicultural Education Technology Journal,7(2/3), pp.127-150. Imf.org. 2015. Global Imbalances and Poverty - Challenges for the World Economy, Remarks by Rodrigo de Rato y Figaredo, Managing Director of the IMF. Available at: https://www.imf.org/en/News/Articles/2015/09/28/04/53/sp062005 [Accessed 15 Apr. 2017]. McVeigh, T. 2013. World poverty is shrinking rapidly, new index reveals. [online] the Guardian. Available at: https://www.theguardian.com/society/2013/mar/17/aid-trade-reduce-acute-poverty [Accessed 15 Apr. 2017]. World Economic Forum. 2016. Poverty: the past, present and future. Available at: https://www.weforum.org/agenda/2016/01/poverty-the-past-present-and-future/ [Accessed 15 Apr. 2017]. Worldbank.org. 2017. Poverty Overview. Available at: https://www.worldbank.org/en/topic/poverty/overview [Accessed 15 Apr. 2017].