US budget deadlock spells doom for poor countries

A possible failure to reach an agreement between US politicians to pass the budget and raise its debt ceiling spells doom for developing countries like Rwanda, a local economic experts has warned.

A possible failure to reach an agreement between US politicians to pass the budget and raise its debt ceiling spells doom for developing countries like Rwanda, a local economic experts has warned.

“A lot of investments and projects, especially those funded by donors will be crippled... developing economies will be the hardest hit. There will be currency fluctuations which will affect export business for most economies, especially in sub-Saharan African.

“We are all waiting to see what happens come Thursday, we know that this could turn very catastrophic… we saw this during the 2008 credit crunch,” the banker added.

Yesterday, the International Monetary Fund boss, Christine Lagarde, warned that a US default could tip the world into recession.

The US Treasury will start to run short of funds on Thursday if no agreement is reached for it to raise its debt limit. Democratic and Republican leaders in the Senate held direct talks for the first time in weeks on Saturday, but with little sign of any breakthrough.

In an interview with ABC TV’s ‘Meet the Press’ Lagarde said America must now raise the debt ceiling before Thursday’s deadline.

“If there is that degree of disruption, that lack of certainty, that lack of trust in the US signature, it would mean massive disruption the world over and we would be at risk of tipping yet again into recession,” she said.

The president of the World Bank, Jim Yong Kim, has also expressed his concern over the situation.

He warned that the US is just “days away from a very dangerous moment” because of the government’s borrowing crisis. Kim urged US policymakers to reach a deal to raise the government’s debt ceiling before Thursday’s deadline.

He warned this could be a ‘disastrous event’ for the world. “Inaction could result in interest rates rising, confidence falling and growth slowing,” said Kim, speaking at the World Bank’s annual meeting in Washington.

The US government has been in partial shutdown since Congress missed a 1 October deadline to pass a budget, with politicians being unable to agree funding for current spending.

Allan Gichuhi, the Ernst & Young, an international audit firm, Rwanda country director, said the US debt ceiling will have a big blow to the emerging markets, especially those that have invested heavily in cash bonds. “Also the remittances from Africans living abroad and foreign direct investments could reduce drastically as a result,” he noted.

 

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