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World Bank: Donor Deficits Could Cut Development Assistance

The World Bank says slower economic growth in developed countries will mean less investment in the developing world and smaller markets for some African producers.

The World Bank's report on global economic prospects for 2010 shows uneven growth in Africa.

In Botswana, the key diamond mining sector is leading an economic recovery that is expected to push gross domestic product up by as much as five percent this year.

In Nigeria, business leaders and consumers say they are having trouble getting loans because last year's $4 billion central bank bailout of failing commercial banks has tightened up credit. When there is money to lend, interest can be as high as 20 percent.

Andrew Burns manages global macroeconomics at the World Bank. He says the impact of the global financial crisis on sovereign debt could make credit more expensive and curb investment in emerging markets.

"On the one hand that seems like it is a European problem and it doesn't concern developing countries but our research suggests that this might actually have an important impact," said Burns. "So we're seeing that growth that otherwise is actually moving along very nicely. We expect growth of 3.3 percent for the world as a whole and for developing countries more than 6 percent this year. We see that that's potentially going to be threatened by what's happening in Europe."

For now, the World Bank says growth has not been affected by concerns that the financial collapse in Greece will spread to other highly-indebted countries. But if the crisis in Europe worsens, the World Bank says growth in developing countries will slow.

"It is definitely a tenuous time," said Elliot Riordan, a senior economist at the World Bank. "I think there's a lot of tension looking forward and we were on, we were moving very hopefully along at an increasing rate of growth. Our earlier expectations were to raise the outlook for the US, Japan, for Asia, for developing countries, the latter group that were really driving the recovery."

The World Bank says Sub-Saharan Africa is expected to continue to strengthen slowly, driven by historically high commodity prices. Growth around five percent is forecast for the next three years, recovery from last year's drop to just one-point-six percent.

But budget cutting in donor nations may also reduce international assistance, which can account for as much as 20 percent of government spending in some developing countries. Judging by previous economic crises, the World Bank says aid to the developing world is likely to fall by nearly one-quarter.