UNITED NATIONS, March 9: Developing countries face a financing shortfall of between $270 billion and $700 billion this year, as private sector creditors shun emerging markets. And only 25 per cent of the most vulnerable countries have the resources to prevent a rise in poverty, says the World Bank.

The global economy was likely to shrink this year for the first time since World War II, with growth at least 5 percentage points below potential, said the World Bank in a report on Sunday.

The bank’s forecasts showed that global industrial production by the middle of the year could be 15 per cent lower than the levels last year. World trade was on track to record its biggest decline in 80 years, with the sharpest losses expected in East Asia.

In a paper formulated for Saturday’s meeting of the Group of 20 finance ministers and central bank governors, the World Bank said that international financial institutions could not by themselves cover the shortfall for the 129 developing countries.

A solution would require efforts from governments, multilateral institutions and the private sector. Only 25 per cent of the vulnerable countries had the ability to finance measures aimed at blunting the economic downturn.

“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.”

The financial crisis would have long-term implications for developing countries. Debt issuance by high-income countries was set to increase dramatically, crowding out many developing country borrowers.

Many institutions that had provided financial intermediation for developing country clients had virtually disappeared. Developing countries that could still access financial markets faced higher borrowing costs and lower capital flows, leading to weaker investment and slower growth in the future.

“When this crisis began people in developing countries, especially those in Africa, were the innocent bystanders in this crisis, yet they have no choice but to bear its harsh consequences,” World Bank Managing Director Ngozi Okonjo-Iweala said in remarks prepared for delivery on Monday at a conference in London organised by Britain’s Department for International Development.

“We must look at poor people as assets and not liabilities. The new globalisation should mean we adopt new ways of caring for our infants, educating our youth, empowering our women and protecting the vulnerable.”

The paper said that 94 of the developing countries had experienced a slowdown in economic growth. Of these countries, 43 had high levels of poverty. To date, the most affected sectors were those that were the most dynamic — typically, urban-based exporters, construction, mining and manufacturing.

Cambodia, for example, had lost 30,000 jobs in the garment industry, its only significant export sector. More than half a million jobs were lost in the last three months of 2008 in India, including in gems, autos and textiles.

Many of the world’s poorest countries were becoming ever more dependent on development assistance as their exports and fiscal revenues declined because of the crisis. Donors were already behind by around $39 billion on their commitments to increase aid, made at the Gleneagles Summit in 2005. The concern now was that aid flows would become more volatile as some countries cut their aid budgets while others reaffirmed aid commitments, at least for this year.

In remarks prepared for delivery at the conference on Monday, World Bank Chief Economist and Senior Vice-President Justin Yifu Lin says developed countries should spend some of their fiscal stimulus in developing countries as the economic effect may 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,” Mr Lin said in the prepared remarks.
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