Yesterday, the World Bank issued a background paper entitled “Swimming Against the Tide: How Developing Countries are Coping with the Global Crisis,” which outlined both the short and long-term implications of the financial crisis on developing countries. The paper was drafted by the World Bank Staff in preparation for next Saturday’s meeting of the Group of 20 (G-20) finance ministers and central bank governors near London. The paper forecasts that the “[g]lobal GDP will decline this year for the first time since World War II, with growth at least 5 percentage points below potential.” The World Bank also offered the bleak prediction that “global industrial production by the middle of 2009 could be as much as 15 percent lower than levels in 2008,” reflecting the largest decrease in world trade in 80 years. The report projects that the crisis would “increase poverty by around 46 million people in 2009.”
Although many of the world’s developing countries have become increasingly dependent upon financial assistance, donor countries are significantly behind on their commitments to increase aid. The report cautions that aid flows may become more volatile as some countries reduce their aid budgets this year. Acknowledging that the World Bank has an important role in assisting developing countries in “assess[ing] and respond[ing] to challenges presented by the economic crisis,”the World Bank intends to almost triple its lending capabilities to approximately $35 billion in 2009, and could total $100 billion during the next three years. The World Bank also emphasized its ongoing commitment to adopt financial instruments and facilities designed to directly respond to the needs of developing and emerging market countries, as illustrated by its recent announcement of its joint initiative with the European Bank for Reconstruction and Development and European Investment Bank to provide up to €24.5 billion to support the banking sectors in Eastern Europe.
The report's conclusions stress that minimizing the impact of the crisis will “require concerted and coordinated actions” by policymakers in both advanced and developed countries. World Bank President Robert B. Zoellick noted that “[t]his global crisis needs a global solution and preventing an economic catastrophe in developing countries is important for global efforts to overcome this crisis.” He further stressed the importance of creating investments “in safety nets, infrastructure, and small and medium size companies to create jobs and to avoid social and political unrest.”