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Developing Countries face $270-700 bn finance gap for 2009

By Kofi Ahovi
A research conducted by the World Bank has shown that developing countries face a financing shortfall of $270-700 billion this year.
This is as a result of private sector creditors shunning emerging markets due to the global financial crisis, and only one quarter of the most vulnerable countries have the resources to prevent a rise in poverty.
According to the World Bank, international financial institutions cannot by themselves currently cover the shortfall, which include public and private debt and trade deficits, for these 129 countries, even at the lower end of the range.
In a paper for next Saturday’s meeting of the Group of 20 finance ministers and central bank governors, the Bank observes that a solution will require governments, multilateral institutions, and the private sector, adding 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.
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% 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 financial crisis will have long-term implications for developing countries. Debt issuance by high-income countries is set to increase dramatically, crowding out many developing country borrowers, both private and public. Many institutions that have provided financial intermediation for developing country clients have virtually disappeared. Developing countries that can still access financial markets face higher borrowing costs, and lower capital flows, leading to weaker investment and slower growth in the future.
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.
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.

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