Low-income countries face long recovery -- Serious challenges require more and better support
Date: 16 Sep 2009
Source: The World Bank Group
Poorest countries face $11.6 billion shortfall in critical core spending, with sharp drops in trade, capital flows, remittances, and tourism; despite efforts to date, further action is needed
WASHINGTON, September 16, 2009 — While the global economy is showing tentative signs of recovery, 43 low-income developing countries are still suffering the consequences of the global recession, which highlights the need to increase support to the poorest countries dealing with economic volatility and crisis, the World Bank said.
In a paper prepared for the upcoming G-20 meeting in Pittsburgh, the World Bank said that as a result of the crisis 89 million more people will be living in extreme poverty, on less than $1.25 a day, by the end of 2010. The global recession has also put at risk $11.6 billion of core spending in areas such as education, health, infrastructure and social protection in the most vulnerable countries.
"The poor and most vulnerable are at greatest risk from economic shocks— families are pushed into poverty, health conditions deteriorate, school attendance declines, and progress in other critical areas is stalled or reversed," said World Bank Group President Robert B. Zoellick. "The poorest countries may not be well represented on the G-20, but we cannot ignore the long-term costs of the global downturn on their people's health and education."
"InterAction is pleased that the World Bank continues to insert the needs of the world's poorest nations into the G-20 conversation," said Samuel A. Worthington, President and CEO of InterAction, the largest coalition of U.S.-based non-governmental organizations focused on the world's poor. "The G-20 countries must rapidly implement the London Summit pledge of $50 billion dedicated for low-income countries to aid them in designing and implementing the policies and social safety nets most developed nations have already established."
Despite strong international efforts to cushion the impact of the global recession on Low-Income Countries, the paper states that low-income developing countries continue to suffer the consequences of the food, fuel and financial crises, and the poorest countries will need additional assistance to confront and move beyond the global recession.
The paper recommends coordinated policy action by the G-20 and others in the following areas:
Agriculture: The food crisis is not over in poor countries, and addressing food security in Low-Income Countries will require raising productivity and incomes of the world's poor farmers. The paper calls on the G-20 to endorse the pledge of $20 billion at the G-8 summit in L'Aquila, Italy, for agricultural development, with firm details on how country commitments will be met, delivery will be operationalized with national ownership, and results and effectiveness will be assessed.
Small- and Medium-Sized Enterprises (SMEs): SMEs are critical to the resumption of growth in Low-Income Countries. The paper argues the G-20 should actively support scaled up efforts to expand finance for SMEs. The World Bank Group plans to double its mobilization of finance for SMEs by 2013 to $15.5 billion.
Crisis Response Facility: The current crisis—and others that will occur—highlights the pressing need for a Crisis Response Facility to ensure that quick and effective assistance can be provided to Low-Income Countries following shocks. Failure to address this need could jeopardize the progress achieved in many poor countries based on recent strong reform efforts, and instead lead to costly reversals.
Since the onset of the food and fuel crises nearly two years ago and the subsequent financial crisis and global recession, donors and development agencies have mobilized significant additional resources for Low-Income Countries. However, low-income developing countries have been hit hard by crises not of their making, and face daunting challenges that jeopardize years of progress in combating poverty.
The paper notes that several economic shocks resulting from the financial crisis are taking a severe toll on the poorest countries, including:
Trade: Low-Income Countries have been hit hard by the downturn in global trade, with export market demand estimated to have dropped by between 5 and 10 percent in 2009.
Private Capital Flows: Net private capital flows to the poorest countries declined significantly to $21 billion in 2008 from $30 billion in 2007 and are projected to drop further to $13 billion in 2009.
Remittances: The sharp deterioration in economic conditions has led to significant declines in workers' remittances to Low-Income Countries, which are anticipated to fall by between 5 and 7 percent in 2009, recovering only modestly in 2010.
Tourism: Many Low-Income Countries, particularly small island states, depend heavily on tourism for foreign exchange and jobs, in both the formal and informal sectors. Worldwide tourism receipts declined by 8 percent between January and April 2009, continuing the sharp falloff recorded during the second half of 2008.
The crisis is slowing dramatically the steady progress achieved in reducing global poverty, notes the paper. In Cambodia, 62,000 garment workers have lost their jobs in this key sector for the economy, with women making up 90 percent of this workforce. Falling copper prices led in 2008 to the laying off of one quarter of Zambia's mining workers.
The paper describes how the World Bank Group stepped up its financial assistance to help developing countries mitigate the impact of the crisis over its past fiscal year. For the World Bank Group as whole, the result has been record levels of activity—with $58.8 billion committed in FY09 to support countries hit by the global crisis, a 54 percent increase over the previous year, and a record high.
Contacts:
David Theis
E-mail: dtheis@worldbank.org
Phone: 202-458-8626
