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IMF-World Bank Forecast Big Slowdown in Developing Economies

On the eve of the IMF/World Bank Spring Meetings here in Washington, the financial institutions released two new reports Friday. The first is the Global Monitoring Report, which says the 2015 Millennium Developments Goals may not be met because of the global financial crisis. It warns the crisis is creating what it calls a development emergency.

World Bank Senior Advisor John Lipsky, lead author of the Global Monitoring Report, says developing nations, in general, are facing serious problems as a result of the global financial crisis.

"Even though the recession is being felt most strongly so far in the advanced economies…unfortunately conditions in developing are deteriorating dramatically. And the situation is extremely serious. For this year, we do not expect more than about one and a half percent growth overall in emerging and developing countries taken as a group," he says.

In many countries, as a result, disposable income will fall. "With simultaneous recessions striking all major regions, the likelihood of a painfully slow recovery in many countries is very real. And this will make the fight against poverty more challenging and even more urgent," says Lipsky.

The World Bank official says all developing countries are feeling a "sharp contraction" in world trade. "Overall, the volume of developing country exports is projected to fall by about six and a half percent in 2009. This is an exceptionally strong decline compared with past crises," he says.

As for commodities, he says, "commodity exporters, especially low income countries, are also feeling the effects of lower demand and weak export prices for their products. In several countries, mines have been closed because world market prices for commodities have declined below production costs and this is contributing importantly to rising unemployment."

There's also been a sharp drop in private capital flows to developing and emerging economies. Government borrowers and private corporations are facing financing problems, according to the report. "Liquidity and solvency problems have forced many banks in advanced economies to reduce international lending," he says.

The World Bank/IMF report says remittances will drop sharply this year "as countries in Europe, Central Asia and Latin America are going to be hard hit."

Lipsky calls for "forceful and urgent action…to cleanse balance sheets and recapitalize banks and improve coordination among the affected economies."

He says that countries should take steps to protect the poor, adding, "bilateral donors must follow up on their commitments to increase aid to low income countries. Current aid levels still fall well short of the G8 commitments made at Gleneagles (Scotland) in 2005. And in particular, the commitment to double aid to sub-Saharan Africa by 2010, frankly, is simply unlikely to be met."

In response, the IMF says it is increasing assistance to low income countries. For example, concessional lending is expected to triple over the next two years. Such loans to very poor countries are usually long-term with very low or zero percent interest rates.

The second IMF report released Friday is the Sub-Saharan Africa Economic Outlook. Antoinette Sayeh, the IMF's African Department director, says, "We see the prospects for Africa significantly worse than they looked six months ago…but the crisis is now in full force in Africa as a result, of course, of the significant slowdown in demand in the rest of the world -- the huge decline in demand for African exports. Demands for those exports have weakened and the prices for most commodity exports have fallen."

Sayeh also cities tighter credit and lower willingness to invest in developing countries during the economic crisis.