The World Bank said on Sunday that the global economy will shrink in 2009 for the first time since World War Two and estimated developing countries face a financing shortfall of US$270-700 billion this year.
In a paper for next Saturday’s meeting of the Group of 20 finance ministers and central bank governors, the World Bank said that the sharp global contraction is affecting both advanced and developing countries.
"Global GDP will decline this year for the first time since World War II, with growth at least 5 percentage points below potential," said the report.
World Bank also said 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.
It also warned that international financial institutions cannot by themselves currently cover the US$270-700 billion shortfall -- that includes public and private debt and trade deficits -- for these 129 developing countries, even at the lower end of the range.
The World Bank noted that only one quarter of vulnerable developing countries have the ability to finance measures to blunt the economic downturn, such as job-creation or safety net programs.
"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," he stressed.
The World Bank report also 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, according to the report.
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 US$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 a conference in London organized by Britain’s Department for International Development 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.
(Xinhua News Agency March 9, 2009)
