Sunday, February 15, 2009

The effect of global economic crisis on poverty

The World Bank estimates that as many as 53 million additional people could fall below the poverty line of $1.25 a day due to the impact of global economic crisis. Declining growth rates coupled with high levels of poverty would be a disaster in the developing countries. It argues that almost 40% of developing countries are exposed to the declining growth rates and high levels of poverty, and an additional 56% of the countries are exposed to decelerating growth or high poverty levels. Less than 10% of the developing countries face ‘little risk’.

It also paints a gloomy picture about infant mortality. It states that between between 200,000 and 400,000 more babies could die each year between now and 2015 if the crisis persists (this totals to 1.4 to 2.8 million).

What about the capacity of the developing countries to deal with the crisis on their own? A WB policy brief states that one-fourth of the countries have the ability to expand fiscal deficits to undertake significant countercyclical spending. Even one-third of these require aid to take this course of action. All others vulnerable countries are fiscally unable to tackle this problem on their own. The bad news is that only one-third of the countries have the institutional capacity to absorb increased spending even if there were external assistance.

Last week, the IDS complied views and analysis from wide range of experts from the developing countries on the fallout of global financial crisis on the developing countries. They identified six main ways the financial crisis will affect the developing countries: lower demand for exports, fall in portfolio and foreign direct investment, fall in exchange rate, rising risk premiums and interest rates, decline in remittances, and decline in foreign aid. On top of this, last year’s rise in commodity and food prices is expected to push over a 150 million people below the standard dollar a day poverty line. More on the impact of food prices here.

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