Illustration: Chen Xia/Global Times

Looking back to the passing year of 2022, a majority of emerging market economies have suffered a complex crisis of food shortages, energy crunches, elevated inflation and higher unemployment. The combination of these economic problems has even triggered political upheavals in some of the economies. 

Their predicament is a result of a series of factors, including the COVID-19 pandemic, the Russia-Ukraine conflict, and the US Federal Reserve's aggressive interest rate hikes. However, there is a common root cause behind all these factors - the US. The US' role in the Russia-Ukraine conflict is clear for all to see. The Fed's rate hikes have caused capital flight and currency depreciation in many underdeveloped economies.

The US dollar index has dropped recently, and the Fed issues a signal that it may slow down the pace of rate hikes. This indicates that the momentum of the US dollar's appreciation will weaken. But in the face of global economic gloom and the restructuring of the global industrial and value chains, most developing countries will continue to face pressure in 2023.

Firstly, many emerging market economies will have to continue to contend with inflation. If the military conflict between Russia and Ukraine cannot be resolved in the short term, the world's food crisis and energy crisis may continue, which will further push up international commodity prices. While some Latin American countries are less affected as commodity exporters, developing countries in general remain at risk of higher inflation, plus serious food and energy shortages in 2023.

Secondly, many emerging market economies and developing countries are expected to face rising debt risks next year. 

It is estimated that in the current economic environment, among the developing countries, many African and South Asian countries still face high debt risks and debt repayment pressures. In the face of ongoing global economic gloom, the incremental and total debts of some developing countries deserve attention.

Thirdly, currency depreciation and capital outflows in many developing countries still need to be closely followed in 2023. There is a common problem facing many developing countries. The financial systems in many countries are vulnerable, and their foreign exchange reserve size is small. Therefore, in face of the impact of the US interest rate hikes, it is impossible and unfeasible for them to keep their currencies not to depreciate.

Facing the complex international geopolitical and economic situation, strengthening financial cooperation among the developing countries is an effective way to deal with the risks in 2023. Although the dominant status of the US dollar will persist over the short term, this does not mean that other countries should sit idly by in face of the risks coming from US' monetary policy tightening. The reason why the US dollar maintains its status as a powerful currency is mainly because it is backed by the US' economic strength. However, the irresponsible actions of the US government are undermining the currency's credibility.

At present, the world is facing a critical time of strategic opportunities for de-dollarization. The emerging market economies should strengthen financial cooperation and promote the process of de-dollarization. If some countries continue to rely too much on the US dollar, their economies will be exposed to uncertainties and risks for a long time.

The developing countries can strengthen local currencies swap in conducting trade. For instance, it is possible to increase yuan settlement in international trade. In this way, the loss caused by the exchange rate fluctuations against the US dollar can be averted.

Drawing lessons from Russia's painful experience of being banned from the SWIFT system, other emerging market economies should build their own financial and currency interaction information mechanism under cooperation frameworks including the BRICS.

And, relevant countries should continue to provide debt relief and debt relief arrangements for the poorer economies facing severe debt distress. As China's economy has weathered the impact of COVID-19 in recent years, the country has fully implemented the G20 Debt Service Suspension Initiative. The total debt service payments suspended by China are the largest among G20 members. The Western countries and leading international institutions need to provide practical assistance to the troubled economies to ease their debt problems, and at the same time avoid imposing harsh political conditions on them.

The author is director of the institute of developing countries at the China Institute of International Studies in Beijing. bizopinion@globaltimes.com.cn