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World Bank: Economic Turmoil Dramatically Affecting Poor Countries

The World Bank issued a somber report Monday on world economic growth.

It warns that the world is entering an era of slower growth that will require tighter and more effective oversight of the financial system. The World Bank report, Global Development Finance2009:Charting a Global Recovery, says the downturn is having a major negative effect on developing nations.

Andrew Burns, Acting Manager of the World Bank's Global Trends Team, spoke to VOA about the drop in net private capital flows to developing countries.

"Capital flows are basically…the sum of investments that are made by foreign companies in other countries…. But also investments that individuals make in the stock markets in developing countries…. And finally, it's also bonds," he says.

Capital flows more of a trickle

"In the context of this global financial crisis…developing countries have been hit very hard. These capital flows, which in 2007 were about a trillion dollars, have declined to about $707 billion in 2008. And we expect them to come down even further to around $360 billion in 2009," he says.

China and India are included in the figures for developing countries.

"If you're to exclude them, then obviously…the initial numbers, but also the more recent numbers are going to be lower," he says.

However, he says, "We have seen a huge surge of these capital flows to these developing countries over the last four or five years. So, although that's a very big decline, it's really bringing us back to the levels that we were observing around 2003."

Sub-Saharan Africa hit hard

"Sub-Saharan Africa is fairly poorly, as is everybody in the world. We expect GDP (Gross Domestic Product) growth…to come in at about one-point-zero percent in 2009. That's following growth rates around five percent of the last several years, four-point-eight percent in 2008. So that's a big step down," he says.

The World Bank expects things to improve with time.

"On the plus side, of course, is the fact that that's still a positive growth rate…. There's a bit of a silver lining in here, but it's going to be a very difficult year and even in 2010, 2011," he says.

Burns says much of what needs to be done to reignite the world economy must happen in the rich nations where the crisis began. The United States and other nations have put policies in place to try to do that.

"We don't expect this episode to be as serious, as say, the Great Depression was. It's nevertheless one of the deepest recessions that we've ever observed," he says.

Real challenge for developing countries

"The real challenge is going to be to manage going through this period of very slow growth, to keep government programs that are critical for longer term growth (infrastructure, health and education policies)…. That's why the bank is stepping up lending to the region. Overall, we're going to lend about $33 billion this year and next year," he says.

He says that's a doubling of lending compared to 2007. The IMF, International Monetary Fund, is also getting a big infusion of funds from rich nations to lend to developing nations in need.

However, some watchdog groups have raised concerns that the potential exists for a new round of poor nations becoming heavily indebted due to the loans. Burns thinks the risk for that is low for now.

"Globally, we find that most developing countries in Africa and elsewhere have improved the quality of their fiscal spending. So they aren't going year on year with these very high deficits. This is going to be a year of high deficits, but it's clearly and directly attributable to this economic cycle," he says.

World Bank forecasts

"The expectation is that growth will come back somewhat more slowly than normal, but nevertheless be positive for Africa. Where we're expecting growth of about three-point-seven percent in 2010 and five-point-two percent in 2011," Burns says.