M A Hossain
The global economic landscape is undergoing seismic shifts, driven by resurgent protectionism, shrinking policy autonomy, and disruptive technological change. For developing nations, these transformations pose unprecedented challenges. The once-dominant Washington Consensus—a neoliberal blueprint advocating free markets, privatization, and fiscal austerity—has lost its relevance, leaving a vacuum in development strategy. As geopolitical rivalries reshape trade and industrial policy, developing economies must chart a new course to secure resilience and growth in an increasingly fragmented world.
The demise of the Washington Consensus marks a turning point in global economic governance. For decades, this framework underpinned international economic policies, emphasizing market liberalization, deregulation, and fiscal discipline. However, its rigid adherence to market fundamentalism failed to address pressing issues such as inequality, climate change, and the unique needs of emerging economies. Today, its decline is accelerated by the resurgence of protectionism and the rise of economic nationalism. The U.S.-China trade war, which has seen tariffs exceeding 20% on $550 billion of goods since 2018, epitomizes this shift. Advanced economies like the U.S. and the European Union are increasingly embracing subsidies and trade barriers to protect their domestic industries. For instance, the EU has imposed tariffs on Chinese electric vehicles, while the U.S. CHIPS and Science Act allocates $52 billion to bolster domestic semiconductor production. These policies reflect a strategic pivot toward “economic security,” but they risk fragmenting global value chains and exacerbating economic disparities.
Developing nations, particularly those reliant on resource exports, face significant challenges in this new environment. The fragmentation of global trade and the rise of industrial policies in advanced economies have reduced export opportunities and heightened uncertainty. Countries dependent on commodities, such as oil or minerals, grapple with volatile demand and shrinking fiscal buffers. Moreover, the global economic landscape is further complicated by the tightening of monetary policies in advanced economies. The U.S. Federal Reserve’s interest rate hikes have inflated debt servicing costs for developing nations, many of which are already burdened by unsustainable debt levels. Zambia and Sri Lanka, both in default, exemplify the strain faced by low-income countries. According to the World Bank, over 60% of low-income countries are at risk of debt distress, diverting critical funds from essential sectors like education and healthcare.
Climate change adds another layer of complexity to the challenges faced by developing economies. Despite contributing only a fraction of historical emissions, these nations bear the brunt of climate disasters. Pakistan’s devastating floods in 2022, which caused $30 billion in damages, underscore the urgent need for adaptation funding and climate resilience. However, the global response to climate change remains inadequate, with developed nations failing to meet their commitments to climate finance. Meanwhile, rising geopolitical tensions have prompted countries like Poland and South Korea to increase defense spending, further crowding out development budgets.
Demographic shifts further complicate the economic outlook for developing nations. Africa’s youth bulge presents both an opportunity and a challenge. With a rapidly growing young population, the continent has the potential to harness a demographic dividend. However, without adequate job creation, youth unemployment could fuel social unrest and political instability. Conversely, aging populations in Asia strain pension systems and demand innovative solutions to sustain economic vitality. These demographic challenges highlight the need for tailored policies that address the unique circumstances of each region.
Technological disruption is another critical factor reshaping the global economic landscape. Historically, structural transformation—shifting labor from agriculture to manufacturing—was a key driver of economic growth. However, automation and artificial intelligence threaten this pathway. Today’s manufacturing is increasingly capital-intensive, offering fewer job opportunities. From 2000 to 2018, Sub-Saharan Africa saw manufacturing employment stagnate at 8% of the workforce, compared to 28% in East Asia during its industrialization. This trend underscores the limitations of traditional growth models and the need for alternative strategies.
There could be boosting productivity in labor-intensive services such as tourism, retail, and digital platforms as a viable alternative. India’s IT sector, which contributes 8% of the country’s GDP, demonstrates the potential of this approach. However, transitioning to a services-driven economy requires robust public investment in education, digital infrastructure, and research and development—areas where many developing economies lag.
To navigate these challenges, policymakers must prioritize macroeconomic resilience, technological innovation, and inclusive structural transformation. Strengthening fiscal frameworks is essential to ensure sustainable growth. Indonesia’s 2020 tax amnesty, which recovered $11 billion in unpaid taxes, funded pandemic relief efforts and highlights the potential of domestic resource mobilization. Similarly, adopting inflation-targeting regimes and flexible exchange rates can help buffer external shocks. Egypt’s 2016 decision to float its currency, though initially painful, stabilized its economy and offered a valuable lesson in monetary flexibility.
Debt management remains a critical issue for developing nations. Restructuring agreements, such as Ghana’s 2023 deal with bilateral creditors, are vital to alleviating fiscal pressures and creating fiscal space for development. Additionally, developing economies must harness technology to boost productivity and drive growth. Rwanda’s Irembo platform, which digitized over 100 public services, reduced corruption and inefficiency, showcasing the transformative power of digital governance.
Education and innovation are equally important in building resilient economies. Vietnam’s focus on STEM education has fueled its rise as a tech manufacturing hub, proving that strategic investments in human capital can yield significant returns. Similarly, Morocco’s Noor Ouarzazate solar plant, which powers 1.3 million homes, demonstrates how renewable energy investments can drive growth while addressing climate challenges.
Inclusive structural transformation is another key pillar of sustainable development. While the services sector holds promise for job creation, it alone cannot absorb the millions of young people entering the workforce in developing countries. Labor-intensive sub-sectors like garment production remain vital. Bangladesh, which employs 4 million workers—60% of whom are women—earns $45 billion annually from textiles, illustrating the sector’s potential to drive growth and empower marginalized groups.
The imperative of global cooperation cannot be overstated. The 'protectionism' mentality risks deepening inequality and exacerbating global challenges. While advanced economies subsidize domestic industries, developing nations need fair access to technology and finance. Reforming multilateral institutions, such as the IMF’s quota system, to amplify emerging economies’ voices is crucial. Initiatives like the G20’s Common Framework for debt relief must be accelerated to ensure equitable solutions.
Regional alliances also play a pivotal role in fostering economic resilience. The African Continental Free Trade Area (AfCFTA), for instance, aims to create a single market for goods and services across 54 countries, fostering intra-African trade and reducing dependency on external markets. Such initiatives highlight the importance of collaboration in building resilient economies.
The path forward demands pragmatism and partnership. Developing economies must balance self-reliance with global engagement, leveraging regional alliances and domestic reforms to navigate the complexities of the 21st century. Meanwhile, advanced nations must recognize that a stable, prosperous world requires shared solutions—not zero-sum competition. Only through collaboration can we build resilient, inclusive economies fit for the challenges ahead. The global economic landscape may be fractured, but with visionary leadership and collective action, we can forge a future that benefits all.
M A Hossain, political and defense analyst based in Bangladesh. He can be reached at: writetomahossain@gmail.com
