Since the October edition of the World Savvy Monitor, the effects of the global financial crisis have continued to spread throughout the world. Though the decline in food and fuel prices provides some respite to consumers, it is estimated that over 100 million people were forced into poverty globally in 2008. The situation remains dire, especially for those in Least Developed Countries (LDCs), and is expected to get worse.
- The World Bank has projected a global economic downturn.
- World trade will fall in 2009 – this will be the first time this has happened since 1982.
- Capital flows to developing countries will decline by 50%.
- Investment growth in the developing world will decrease from 13% in 2007 to 3.5% in 2009.
- For every one percent drop in growth, an additional 20 million people could be forced into poverty.
- A critical effect of the crisis has been a decrease in international aid.
- At the November International Conference on Financing for Development, Kemal Dervis, Chair of the United Nations Development Group, urged donor nations to uphold their commitment to donate 0.7% of Gross National Income (GNI) by 2010, noting that the world spends US $1.3 trillion a year on armaments, as compared to the US $140 billion pledged toward official development assistance.
- Official donor data for 2008 have not yet been released.
- A decline in remittances is an inevitable effect of the global financial crisis; many families in developing countries who are reliant upon remittances from relatives living and working abroad will see those remittances decline.
- Nabil Samman, an economist who runs the Damascus-based Center for Research and Documentation, predicts that the Syrian population will suffer as remittances from the million Syrians (of a population of nearly 20 million) working in Persian Gulf oil-producing nations decline as a result of declining oil prices.
- Since 2001, more than 1 million Ecuadorians have found employment in the United States and Europe. After oil, remittances make up Ecuador’s largest source of revenue. As the world economy continues to worsen, remittances are decreasing and some immigrants are returning home to Ecuador.
- The World Bank has responded by increasing aid flows.
- The International Bank for Reconstruction and Development, an arm of the World Bank, has committed up to $100 billion in aid to developing countries over three years.
- In 2008, the Bank hoped to lend more than US $35 billion, a sharp increase from the US $13.5 billion lent in 2007.
- The Bank’s Global Food Response Program, created in May 2008 to hasten aid to the neediest countries, has been approved and began disbursing US $839 million in 27 countries in mid-December.
- The United Nations has also responded with new programming and on November 28, 2008, the United Nations Capital Development Fund (UNCDF) launched MicroLead.
- The program will focus on increasing financial services, particularly microfinance services, to LDCs.
- A fund of US $26 million will be used to encourage the expansion of financial service providers with an emphasis on the poorest and post-conflict LDCs.
Snapshots from Around the World
- Latin America and the Caribbean
- Weaker commodity prices will likely hurt commodity exporters such as Argentina; nations such as Brazil and Mexico with strong trade ties to the United States and Europe will likely face downturns as a result of decreased demand.
- The Economic Commission for Latin America and the Caribbean (ECLAC) has projected that 10 to 15 million more people in the region will have fallen below the poverty line in 2008, largely as a result of food price volatility.
- East Asia and the Pacific
- Though this region has not been as hard hit by the global financial crisis, it has recently begun to feel the effects, largely through decreased exports.
- China's growth is projected to slow from 9.4% in 2008 to 7.5% in 2009.
- Lower investment and lessening export demand led to a decrease in GDP of 5.3% in 2008, with a further 2.7% decrease expected in 2009.
- Russia, which is suffering from a banking crisis in addition to lower oil prices, experienced a reduction in GDP of 8.1% in 2007 and a further 6% in 2008.
- Middle East and North Africa
- Though this region has not suffered significantly yet, lower oil revenues could bring about future difficulties.
- Many of the poorer nations in the Middle East are dependent upon oil-producing Persian Gulf nations. These oil-rich nations have been a source of jobs (which translate into remittances), direct investment, tourism, and ‘checkbook diplomacy.’ Significant decreases in oil revenues will likely be felt in these states.
- Growth is expected to decline from 9.4% in 2007 to 5.4% in 2009 as a result of tighter credit conditions and decreased foreign demand.
- In India and Pakistan industrial production is expected to decline as export-driven industries, as well as firms providing outsourced services to western nations, feel the effects of decreased worldwide economic activity.
- Growth increased to 5.4% in 2008, but is expected to decline slightly to 4.6% in 2009, a significant decline for subsistence level economies.
- The economy of Zimbabwe is in crisis as a result of political unrest (see the October update of ‘Democracy in the World’), deteriorating infrastructure, a failing economy fueled by runaway inflation and widespread disease. The CATO Institute estimated the inflation rate to be 89.7 sextillion percent in November 2008, while the ongoing cholera epidemic has already produced a death toll of over 1000 people.