Vulnerable Nations on the Brink: The Double Shock of Aid Cuts and US Tariff Increases
The world’s poorest countries are grappling with two new shocks from major economies this year: US and European aid cuts, and higher US tariffs. Weak resilience exacerbates the negative impacts. Countries with limited policy space, including 38 nations at high risk of, or already in, debt distress, may face unsustainable debt burdens and resulting macroeconomic imbalances. Structural challenges and climate change risk further compounding the effects of aid and trade shocks. In this issue of the ODI’s “This Week in Macroeconomics”, Sherillyn Raga, Prachi Agarwal and Viola Fur highlight the perilous double burden of aid cuts and escalating US tariffs on the world’s most vulnerable nations, a crisis demanding immediate global attention and strategic responses. A window of opportunity remains to build resilience. Central banks should prepare monetary policy tools and liquidity easing measures to address potential exchange rate volatility and credit crunches.
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