[OPE] World Bank Report: "Swimming against the tide: how developing countries are coping with the global crisis"

(This report also contains some useful info in the way of indicative estimates showing the magnitudes of the current downturn in the world economy - JB)

"We need to react in real time to a growing crisis that is hurting people in developing countries," said World Bank Group President Robert B. Zoellick. "This global crisis needs a global solution and preventing an economic catastrophe in developing countries is important for global efforts to overcome this crisis. We need investments in safety nets, infrastructure, and small and medium size companies to create jobs and to avoid social and political unrest."

The global economy is likely to shrink this year for the first time since World War Two, with growth at least 5 percentage points below potential. World Bank forecasts show that global industrial production by the middle of 2009 could be as much as 15 percent lower than levels in 2008. World trade is on track in 2009 to record its largest decline in 80 years, with the sharpest losses in East Asia. (...)

The paper said that 94 out of 116 developing countries have experienced a slowdown in economic growth. Of these countries, 43 have high levels of poverty. To date, the most affected sectors are those that were the most dynamic, typically urban-based exporters, construction, mining, and manufacturing. Cambodia, for example, has lost 30,000 jobs in the garment industry, its only significant export industry. More than half a million jobs have been lost in the last three months of 2008 in India, including in gems and jewelry, autos and textiles.

Many of the world's poorest countries are becoming ever more dependent on development assistance as their exports and fiscal revenues decline because of the crisis. Donors are already behind by around $39 billion on their commitments to increase aid made at the Gleneagles Summit in 2005. The concern now is that aid flows will become more volatile as some countries cut their aid budgets while others reaffirm aid commitments, at least for this year.

In remarks prepared for delivery at the same conference in London on Monday, World Bank Chief Economist and Senior Vice President Justin Yifu Lin said developed countries should spend some of their fiscal stimulus in developing countries as the economic effect could be significant. "Clearly, fiscal resources do have to be injected in rich countries that are at the epicenter of the crisis, but channeling infrastructure investment to the developing world where it can release bottlenecks to growth and quickly restore demand can have an even bigger bang for the buck and should be a key element to recovery," Lin said in his prepared remarks. http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:22093316~menuPK:34463~pagePK:34370~piPK:34424~theSitePK:4607,00.html

Excerpts:

SWIMMING AGAINST THE TIDE: HOW DEVELOPING COUNTRIES ARE COPING WITH THE GLOBAL CRISIS
_____________________________________________________________________________
Background Paper prepared by World Bank Staff for the G20 Finance Ministers and Central
Bank Governors Meeting, Horsham, United Kingdom on March 13-14, 2009.

I. Key Messages
The sharp global contraction is affecting both advanced and developing countries.
Global industrial production declined by 20 percent in the fourth quarter of 2008, as high income
and developing country activity plunged by 23 and 15 percent, respectively. Particularly
hard hit have been countries in Eastern Europe and Central Asia and producers of capital goods.
Global GDP will decline this year for the first time since World War II, with growth at least 5
percentage points below potential. World trade is on track to register its largest decline in 80
years, with the sharpest losses in East Asia, reflecting a combination of falling volumes, price
declines, and currency depreciation.
Financial conditions facing developing countries have deteriorated sharply. The World
Bank estimates that developing countries face a financing gap of $270-$700 billion depending on
the severity of the economic and financial crisis and the strength and timing of policy responses.
Even at the lower end of this range, existing resources of international financial institutions
would appear inadequate to meet financing needs this year. Should a more pessimistic outcome
occur, unmet financing needs will be enormous. (...)

1. Restore confidence: Only by restoring confidence in the global financial system will the
financing needed for growth-including through short-term trade finance, medium-term
debt rollovers, and long-term FDI, including via public-private partnerships-resume at the
level required to restart growth.

2. Restore aggregate demand: Without restoring aggregate demand, job prospects will
remain poor and unemployment will continue to rise, creating its own cycle of economic,
social and political pressures. Key to this will be renewed growth in global trade, with the
provision of trade finance a high priority. But one of the greatest threats to increased trade
flows is protectionism and beggar-thy-neighbor policies, which need to be resolutely resisted.

3. Increase concessional flows: With needs mounting, and progress to the MDGs under
increasing threat, now is not the time to cut pull back from commitments to increase both
the quantity and quality of ODA. Indeed, under current circumstances, donors should make
a concerted effort to enhance the share of assistance that is untied and provided in the form
of budget support.

4. Enhance the counter-cyclical impact of lending from the IMF and parallel financing
from the MDBs: Responding to the perils implied by the current economic situation will
require that the IFIs become more nimble, innovative and flexible to ensure that resources
are mobilized quickly and used to their greatest effect.

5. Provide additional support to the private sector, particularly in emerging market
economies: With the risks of doing business having increased across the board, the official
sector, through institutions like the IFC, will play an increasingly valuable role by sharing
these risks. Increased collaboration and partnership between these facilities will be key to
making the best use of available resources.

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Received on Sun Mar 8 16:32:00 2009