World Bank to Address G20 Finance Ministers on Developing Nations
Many African countries have not been as deeply impacted by the global financial crisis. However, there are a handful of nations that have been deeply impacted by the financial crisis, mainly developing countries. Over the recent years, developing countries have relied heavily upon foreign investors to boost their economy.…
Many African countries have not been as deeply impacted by the global financial crisis. However, there are a handful of nations that have been deeply impacted by the financial crisis, mainly developing countries. Over the recent years, developing countries have relied heavily upon foreign investors to boost their economy. Nigeria and other developing countries now face a $270 billion to $700 billion financial shortfall to pay for imports and debts.
A recent report, published ahead of the March 14th meeting of the Group of 20 finance ministers, noted that only one quarter of the most vulnerable countries had the ability to ward off the rise of poverty. In order to prevent complete financial meltdowns, governments of most developed countries have injected billions of dollars into their economies. But not all of these countries have the ability to pump several billion dollars into their economy when they are so dependent on foreign aid or investments.
Nigeria for example has already introduced a number of measures to try and curb complete economic meltdown. Some of the measures include reducing of foreign trips by government officials, depreciating the exchange rate, establishing a Financial Service Regulatory Committee, creating an Asset Management Company, and deregulating of Nigeria’s oil sector.
In the last decade when foreign investors have looked to developing countries, Nigeria had recorded a gross domestic product (GDP) growth rate of 6.6 percent last year and projected a growth rate of 7.5 percent this year. However, the proposed growth rate for this year seems unlikely due to the lack of liquidity in the present economic market.
The World Bank recently noted that the emerging countries could not only be solely dependent on the liquidity of international financial institutions to provide for public/private debt and trade deficits. Currently, the World Bank has classified there to be 129 emerging countries.
The President of the World Bank, Robert B. Zoellick, is urging a global solution to prevent total economic meltdown, especially catastrophic economic disasters in developing countries. He suggests that solutions need to be made not only for developed countries that have already injected billions into their economy but also solutions that would provide for the emerging countries. Some of the potential direction in which the developed countries could take include investments in safety nets, infrastructure, small and medium sized companies to create jobs and to avoid potential social and political unrest, which have a high chance of occurring in the developing nations.
According to the World Bank, world trade is declining at its fastest rate in eighty years. East Asia was impacted the most as global industrial production is expected to be 15 percent lower than in 2008. There has also been a surge of debt issuances by rich nations, which could potentially risk preventing many developing countries to borrow. But if an emerging nation even has access to capital markets, the result would most likely force the emerging market to pay higher rates of interest.
The onset of the global financial crisis did not initially impact many developing nations, especially nations in Africa, but the consequences have finally reached these nations. World Bank Managing Director Ngozi Okongo-Iweala said that special attention needed to be paid to poor people because of the way in which globalization has impacted all economies.
The World Bank has also reported that 94 out of 116 developing countries have observed a slowdown in economic growth and an increase in poverty for 43 of the countries. The increased poverty and economic slowdown also means a growing dependency of foreign aid. According to the report, the nations that have been most affected have a high concentration in the following sectors: exports, construction, mining and manufacturing. Cambodia, for example, has lost 30,000 jobs to date in the garment sector, which it relies on to fuel its economy.
Before the onset of the global financial crisis, the poorest nations were already dependent on foreign aid for development assistance. But since the economic slowdown, the poorest nations have become even more dependent on development assistance especially as exports and fiscal revenues fall. Reportedly, donors are already behind $39 billion on committed aid. The problem arises now that aid flow will become more volatile as some countries look to cut their aid budgets while others reaffirm aid commitments.
The World Bank is looking to address the aforementioned issues at the G20 summit. They are asking for developed countries to send some fiscal stimuli to developing countries as they would be effective and significant. The World Bank is not oblivious to the crisis and the need for stimuli in the rich nations too. The bank though does believe that tunneling stimulus packages towards developing countries would quickly restore growth and demand, which also could help spur a global economic recovery.
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