Lagos — Nigeria and other developing countries face a financing shortfall of $270-700 billion to pay for their imports and service their debts this year, as the global economy falters and foreign investors withdraw, the World Bank has said.
In a report published yesterday ahead of a March 14 meeting of Group of 20 finance ministers, the World Bank also said only one quarter of the most vulnerable countries have the resources to prevent a rise in poverty.
In a bid to curtail the effects of the global financial meltdown, governments of most developed countries have pumped several billions of dollars into their economy to save their financial system.
Nigeria has also taken a number of measures including the reduction of foreign trips by government officials, depreciation of its exchange rate, push for establishment of a Financial Service Regulatory Committee, an Asset Management Company, and deregulation of its oil sector, among others.
Nigeria had recorded a Gross Domestic Product (GDP) growth rate of 6.6 per cent last year and proposed a growth rate of 7.5 per cent this year, which analysts insist may not be a reality given the tight liquidity in the economy that has reduced consumer spending.
But the World Bank said that international financial institutions could not by themselves currently cover the shortfall of emerging countries – that includes public and private debt and trade deficits – for 129 emerging countries, even at the lower end of the range.
“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.”
World trade is forecast to record its fastest decline in 80 years, with East Asia suffering the sharpest fall, the bank said.
Global industrial production is expected to be as much as 15 per cent lower than in 2008.
The World Bank said a surge of debt issuance by rich nation’s risks “crowding out many developing country borrowers, both private and public”.
Emerging nations that can access capital markets will be forced to pay higher rates of interest.
“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 today at a conference in London organised by Britain’s Department for International Development (DfID).
“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,” she said.
The report said that 94 out of 116 developing countries had experienced a slowdown in economic growth, with poverty increasing in 43. The result, the bank said, would be growing dependence on foreign aid.
“To date, the most affected sectors are those that were the most dynamic, typically urban-based exporters, construction, mining, and manufacturing. Cambodia, for example, has lost 30,000 jobs in the garment industry, its only significant export industry. More than half a million jobs have been lost in the last three months of 2008 in India, including in gems and jewellery, autos and textiles,” the report said.
Many of the world’s poorest countries are becoming ever more dependent on development assistance as their exports and fiscal revenues decline because of the crisis. Donors are already behind by around $39 billion on their commitments to increase aid made at the Gleneagles Summit in 2005. The concern now is that aid flows will become more volatile as some countries cut their aid budgets while others reaffirm aid commitments, at least for this year.
In remarks prepared for delivery at the same conference in London today, World Bank Chief Economist and Senior Vice-President Justin Yifu Lin said developed countries should spend some of their fiscal stimulus in developing countries as the economic effect could be significant.
“Clearly, fiscal resources do have to be injected in rich countries that are at the epicenter of the crisis, but channelling 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,” Lin said in his prepared remarks.