Developing countries '$270bn short'

09/03/2009| IslamWeb

Developing countries may face a financing gap of $270bn to $700bn this year as trade income dwindles and rich nations vie for capital to deal with a global slump, the World Bank says.

The World Bank said on Monday that international financial institution resources would not be sufficient to meet their needs as more and more emerging and developing countries are hit.

"Should a more pessimistic outcome occur, unmet financing needs will be enormous," the World Bank said in a paper prepared for meetings of the G20 group of countries in London in April.

The World Bank spends billions of dollars annually fighting poverty in developing countries.

Shrinking trade

Last week, the International Monetary Fund (IMF) said developing countries would need $25 billion, and possibly as much as $140 billion, in 2009 to meet their financing needs.

The World Bank said the crisis could have long-lasting repercussions for developing countries, which are contending with a drop in exports as world trade shrinks for the first time since 1982.

At the same time, remittances from overseas workers are slowing and falling commodity prices have sapped a revenue source that many countries rely on.

"The challenge facing developing countries is how, with fewer resources, to pursue policies that can protect or expand critical expenditures, including on social safety nets, human development and critical infrastructure," the World Bank said in its report.

It estimated that in 2009, 104 of 129 developing countries will have current account surpluses smaller than private debt. For these countries, total financing needs were expected to amount to more than $1.4 trillion during the year.

Donor demands

Financial demands on international donors are expected to exceed private sources of financing (equity flows and private debt disbursements) in 98 of the 104 countries, implying a financing gap in those 98 countries of about $268 billion.

Should rollover rates, or loan renewals, come in lower than expected, or capital flight significantly increase, this figure could rise to almost $700 billion, the World Bank said.

It said the situation could become as severe in poorer countries where falling growth will impact families living just above the poverty line, who are particularly vulnerable.

Many of the worst affected countries are heavily reliant on aid which could be cut as rich nations cope with budget pressures of their own.

"There is therefore a strong need to expand assistance to [lower income countries] to protect critical expenditures and prevent an erosion of progress in reducing poverty," the World Bank said.

Meanwhile, the likely sharp drop in remittances will affect the incomes of poor families as unemployment rises and more migrant workers lose jobs in Europe and the United States.

Remittance flows are estimated to have reached $305 billion in 2008, up 9 per cent from 2007.

World Bank projections suggest remittances to developing countries will fall in 2009, with Africa, Eastern Europe and Central Asia hardest hit.

PHOTO CAPTION

World Bank President Robert Zoellick, pictured in February 2009.

Al-Jazeera