Page 17 - Issue-47

ELITE
Vol.1, Issue 47, September 2022 ELITE

Impact of this increase on developed and Then, some emerging countries may experience
developing countries financing difficulties. Since the debt of these
Developed countries countries is often expressed in dollars with an
When the FED interest rate is high, US banks tend to increased value, countries will therefore have
borrow less money from each other. So the cost of repayment problems. It has become more difficult to
borrowing will be higher, so expenses will be maintain a good level of liquidity or even solvency.
minimized. This leads to the dollar gaining value According to the World Bank, nearly a third of the
against other currencies “appreciating”. American foreign debt of the poorest countries has been
exports will therefore be less important. This gives contracted at variable rates. In a context of rising
other developed countries the chance to dominate the interest rates, defaults, similar to that recorded by
international market and be more competitive; since Sri Lanka in April, could occur. Similarly, countries
their currencies are now considered weak before the dependent on imports of mainly American foreign
dollar. As a result, their goods will be less expensive products will have a major problem when the dollar
compared to American goods. Major economies are rises. The monetary value of these imported goods
therefore expected to mark GDP growth. But this will or services will be greater than before. In short,
not apply to the United Kingdom, the European developing countries will be negatively affected by
countries or Canada. In the UK, the Bank of England these decisions. According to the United Nations, in
is expected to raise rates even though it expects the Africa, the slowdown in external demand of the
economy to stagnate over the next two years. The European Union - its leading trading partner,
overall situation is that the economic problem will accounting for about 33 percent of Africa's exports -
worsen next year than it was before the pandemic,' and the decline in monetary and financial support
said Thomas Pugh, economist at RSM UK, a tax and hamper economic growth. In the context of high
advisory firm. In Europe, the European Central Bank debt and high borrowing costs, many Governments
“ECB” raised its key interest rate by 0.75 points. It seek bilateral and multilateral aid to finance public
follows in the footsteps of the Fed and the Bank of investments. There is increasing pressure to cut
Canada. The reason behind the ECB’s rate hike is spending or increase taxes in many countries. Risks
simple: for Council members, inflation was to regional security and local stability increase with
extremely high in August; it was 9.1% although it increased frustration over inflation, job shortages,
must be only 2%. Since the global context was and economic mismanagement. In short, developing
already inflationary, all countries are trying to lower countries will be adversely affected by these
this inflation rate by raising key interest rates. So we decisions.
can deduce that the American economic condition did
not impact the developed countries in a significant Obviously, the rise in key interest rates in the
way, since they had taken decisions more or less context of globalization is changing a lot in the
similar to those of the FED. global economy. When an international economy
Impact of this increase on developing countries and value chains are present, any national event in a
Internationally, emerging and developing countries large country will change the entire economic scene
could also be impacted by US monetary policy. The and influence the entire global economy.
increase in American interest rates could, first of all, Globalization has not made the economy a bad
lead to the flight of capital from those countries to the thing, even though it has changed the rules of game.
United States, which is exactly what happened in This economic change should not be seen only on its
Egypt. This would lead the central banks of these negative side; Obviously, globalization has many
countries to raise their own key interest rates and thus advantages. With globalization, the utility of the
suffer the risk of penalizing their own economies by consumer is increased by the presence of large
entering a recession stage. numbers of products of different variety and quality.
This therefore contributed to the increase in its
standard of living. Even producers and firms have
been able to expand their activities by reaching
markets in different countries. These companies
have had fairly significant growth rates. That is why
we can deduce that all countries have an interest in
being part of economic globalization. No doubt,
Back those who do not integrate economically, miss a
Back
certain chance of development.
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