New World Bank facility to fast-track $2 billion to help world’s poorest countries

World Bank Group President Robert B. Zoellick

10 December 2008 – The World Bank has created a $2 billion fast-track facility to speed up grants and long-term interest-free loans to help the world’s poorest countries cope with the impact of the global financial crisis, noting a marked slowdown everywhere, including in formerly resilient developing nations.

“The poorest people will be hit the hardest by the crisis that is likely to get worse next year,” World Bank Group President Robert B. Zoellick said. “Our Global Economic Prospects report projects developing country growth will be 4.5 per cent next year, down from 7.9 per cent in 2007. We want to help countries manage this downturn with rapid financing to help minimize its impacts and by assisting them in designing supportive policies.”

The facility will quickly make available an initial $2 billion of the $42 billion International Development Association (IDA) Financial Crisis Response Fast-Track Facility resources to 78 of the poorest countries over the coming three years.

It will foster rapid Bank response to the pressing needs of IDA countries based on more swift World Bank analysis of those needs. It will finance expenditures needed to maintain economic stability and sustain growth, address volatility, and protect the poor. Operational responses will include funding budget expenditures in infrastructure services, education, and health and social safety nets.

“We cannot afford business as usual. We need a human rescue package, not just a financial rescue package – and we need a new rapid response capability to make sure the money gets quickly to where it is most needed,” Mr. Zoellick said. “Already 100 million people have been driven into poverty as a result of high food and fuel prices, and we estimate that a 1 per cent decline in developing country growth rates will trap 20 million more people in poverty.”

The full impact of the global financial crisis will hit IDA countries later than higher-income countries, but the development costs will be higher there. In low-income countries the financial sector is less well integrated into global financial markets, so the direct effect on the financial sector will be significant only in countries with plans to access markets and those with high foreign bank presence.

A new World Bank report, Global Economic Prospects 2009, predicts that global gross domestic product (GDP) growth will slip from 2.5 per cent in 2008 to 0.9 percent in 2009. Growth in rich countries next year will likely be negative.

“We see that the global economy is transitioning from a long period of strong growth led by developing countries to one of great uncertainty as the ongoing financial crisis has shaken markets worldwide,” World Bank Global Trends Manager Hans Timmer said. “The slowdown in developing countries is very significant because the credit squeeze directly hits investments, which were a key pillar supporting the strong performance of the developing world during the past 5 years.”

With tighter credit conditions and less appetite for risk, investment growth in the developing world is projected to fall from 13 per cent in the 2007 to 3.5 per cent in 2009, deeply significant because a third of GDP growth can be attributed to it.

In East Asia and the Pacific, GDP growth slowed to an estimated 8.5 per cent in 2008 and is expected to drop to 6.7 percent in 2009. Growth in Europe and Central Asia is expected to slow to 5.3 per cent in 2008, falling to 2.7 per cent in 2009. In Latin America and the Caribbean, growth, expected to be 4.4 percent in 2008, is at risk, pressuring private sector investment.

The Middle East and North Africa region appears to have held up well in 2008, growing at an unchanged 5.8 per cent in 2008, but growth is expected to be just 3.9 percent in 2009. In South Asia GDP growth eased to 6.3 per cent in 2008 from 8.4 percent in 2007 and is expected to slip to 5.4 per cent in 2009.

In Sub-Saharan Africa, growth expanded to 5.4 per cent in 2008, and is expected to ease to 4.6 per cent in 2009. But the contribution of net exports to African GDP growth may fall, and many countries are exposed to terms-of-trade shocks. Higher food and fuel prices have also widened the poverty gap, raising the risk of social unrest.

The report also noted that recent sharp declines in oil and food prices marked the end of what has been the greatest commodity price boom of the past century. Like earlier booms, this one was driven by strong global economic growth and has come to an end with the abrupt slowdown in the global economy precipitated by the financial crisis.

But despite the decline, concerns persist about long-term demand and supply, and about the impact of high commodity prices on poor people, but the world in not necessarily heading into a prolonged period of insufficiency with, as some fear, dwindling supplies of oil, metals, and food grains, and ever-increasing prices.

“We find that speculation about looming shortages of food and energy is not well founded, and that the world won’t run out of key commodities given the right policies,” Andrew Burns, lead author of the report, said. “How things actually play out over the next 20 years depends on governments taking steps to reduce oil dependence, promote alternative energy, combat climate change, and boost farm productivity.”

A separate report by UN Economic Commission for Latin America & the Caribbean (ECLAC) noted that while the percentage of the population living in poverty in the region dropped to 33.2 per cent or 182 million people in 2008 from 34.1 per cent pr 184 million the previous year, the actual number of people living in extreme poverty rose to 71 million (12.9 per cent) from 68 million people (12.6 per cent).


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