COVID-19 Advice for the JCU Community - Last updated: 18 October 2021, 7am (AEST)

Economy and Employment

The past 70 years have seen a dramatic increase in living standards across the world. Even nations that today are relatively poor enjoy living standards that were unprecedented 100 years ago. The reasons for this development are varied and complex; however, economic growth is the most often used indicator for improvement in living standards. Generally, nations that have strong economic growth are better able to reduce poverty rates, strengthen political stability, improve the quality of the natural environmental and even diminish the incidence of crime and violence. Although economic growth is far from a perfect indicator of wellbeing, particularly when used to compare between nations, when used alongside other indicators, it can contribute to understanding development in the Tropics.

The recent economic shocks from the COVID-19 pandemic of 2019–2020 will not be fully understood for some time but are expected to have an impact on global economic growth, debt and employment, particularly in the service industry.

GDP per capita has continued to increase globally following the global financial crisis of 2008–2009; however, the existing gap between the Tropics and the rest of the world has grown larger, indicating that economic growth in the Tropics is not keeping pace with global growth. Although rates of growth in the Tropics have been comparable with global averages, between 2016 and 2018 the growth rate per annum in the Tropics fell below that of the rest of the world for the first time since the Asian Financial Crisis in 1998. There are likely several drivers for this slowdown in growth, including local disasters such as extreme climatic events, conflict and disease outbreaks. However, there are also underlying global influences associated with trade uncertainty and changing investment patterns. Many countries in the Tropics are reliant on relatively few commodity exports, and although metals such as aluminium, copper and iron have recovered, both non-fuel (e.g., agricultural products) and fuel prices have declined substantially since 2010–2014.

Beyond GDP, understanding how income is shared among the people of a nation or community provides a better perspective of what is needed to eradicate poverty and improve health and wellbeing outcomes. The Gini Index measures the extent to which the distribution of income (or, in some cases, consumption expenditure) among individuals or households within an economy deviates from a perfectly equal distribution.

In the Tropics, with some exceptions, most counties have a higher Gini Index compared with the rest of the world, indicating higher rates of income inequality. Inequality is particularly high in Central and South America and Central and Southern Africa. Outside the Tropics, the highest rates of inequality are found in South Africa, the US and some Middle Eastern countries. The lowest rates of inequality globally are found in Scandinavia and Eastern Europe. South East Asia generally has lower inequality than elsewhere in the Tropics.

Public sector debt and deficits concern governments throughout the world. All nations have some form of public debt; however, risk arises when debt is unable to be serviced sustainably. Total debt service is the sum of principal repayments and interest actually paid in foreign currency, goods or services on long-term debt, interest paid on short-term debt, and repayments (i.e., repurchases and charges) to the IMF and other creditors. Data are public and publicly guaranteed debt service as a percentage of gross national income (GNI).

With some year-to-year variation, debt service as a proportion of GNI has shown a general upward trend globally since 2010. In the Tropics, this growth has been notable despite not yet reaching the scale of debt seen around the late 20th and early 21st centuries. This pattern is reflected, albeit at different scales, across all tropical regions.

According to the Overseas Development Institute, debt relief has had a smaller impact since 2007 largely due to slower economic growth and exchange rate depreciations (affected by commodity prices). These data show warning signs of future debt challenges for the Tropics. Avoiding the level of debt crisis that occurred in the early 1990s will be essential for tropical countries to achieve a sustainable future. Through the Heavily Indebted Poor Countries Initiative and the Multi-lateral Debt Relief Initiative, the IMF and World Bank continue to work specifically with poor countries to ensure debt burdens can be managed. To qualify for debt relief, countries need to meet a number of criteria, including implementing key reforms and policies and a poverty reduction strategy. Through this program, 36 countries have qualified for full debt relief, 35 of which are in the Tropics. Three further tropical countries (Eritrea, Somalia and Sudan) are potentially eligible but have not yet met all criteria. In April 2020, the IMF and World Bank announced temporary debt relief for a number of qualifying countries due to the COVID-19 pandemic, to help alleviate the significant impact the health crisis is having on developing economies.