More than one year on from the economic crisis, DFID is working hard to ensure international responses remain firmly focussed on the needs of the most vulnerable people in the developing world.
The crisis cut world output in 2009 by about 5% relative to what we expected.
Although the latest projections are for growth to resume next year, it will be muted, so that output for 2010 will be about 8% less than expected.
While some developing countries have seen output falling, in many it has just grown less rapidly than hoped.
DFID estimates that, as a result of the crisis, 90 million more people will be in poverty by 2010 than was previously expected.
The number of chronically hungry people this year has risen by 105 million to top 1 billion for the first time; or close to one in six people on the planet.
Social impacts
There remains significant uncertainty about the social impacts of the economic crisis.
But we know the world’s poor, already suffering from a record hike in food prices, have had to contend with major declines in growth and increasing numbers of lost jobs in developing countries in the past year.
Developing countries which have improved the management of their economies over the years seem to have weathered the storm better, and most have - appropriately - avoided large increases in government deficits.
As highlighted in the recent White Paper, DFID believes strong economic growth remains the most powerful means of reducing poverty and improving the quality of life in those countries.
But too often growth has been damaging to the local and global environment including the climate, and has privileged the rich over the poor. Often it has failed to generate enough jobs.
Sustainable growth
For many countries, the downturn is an opportunity to re-orient policies to transform their growth pattern over the long run. First, to achieve growth that lasts. Second, to move towards low carbon and environmentally sustainable growth. Third, to build the capacity for increased regional growth. And fourth, to promote more inclusive growth that benefits all people.
Sustained and sustainable growth and trade are critical to making faster progress towards the Millennium Development Goals – and continuing to invest in developing countries is the right thing to do.
The department’s commitment to increasing overseas aid to 0.7% of national income by 2013 was recently reaffirmed by the Prime Minister, who promised that this would become law.
DFID played a key role in securing from the London Summit in March 2009 the strongest possible outcomes for developing countries, including the commitment to make available $50 billion for Low Income Countries (LICs) as part of a $1.1 trillion package to help the world economy through the crisis.
Close links
At individual country level, especially in PSA countries, DFID has maintained close links with partner governments to support their responses, including work to reduce vulnerability to shocks and promote flexible responses to changing economic conditions.
The department has responded to the changing conditions by targetting additional support to specific countries (for example Ethiopia) and by giving policy advice and frontloading resources within the year.
July’s White Paper also highlighted social protection spending as part of DFID’s long-term strategy to protect the poorest and prevent irreversible effects from crises.
DFID has backed the establishment of a Rapid Social Response Fund in the World Bank, whose remit is to support social protection programmes, with a £200 million financial contribution.
And DFID continues to pursue policies that give people access to financial services such as banking and loans. In this way, financial services are expanded and make it possible for the poor to build businesses and become self-reliant.
Debt relief
The impact of the economic crisis is a stark reminder that the gains made in moving toward the MDGs can be fragile. Even temporary setbacks to growth put a halt to poverty reduction.
The lesson from recent decades and the current crisis is clear. If countries do not grow, and grow consistently, they cannot reduce poverty sustainably.
We are therefore carefully monitoring the effect of the crisis on debt levels. Most countries are in a much stronger position due to past debt relief and countries with vulnerable debt positions continue to receive multilateral assistance as grants.
For less vulnerable countries, concessional lending maximises the support that can be provided from finite resources, supporting core spending and investment through the crisis.
Countries in strong debt positions remain robust to the crisis – including most that have completed the Heavily Indebted Poor Countries (HIPC) initiative.
The global nature of the crisis requires a strong multilateral response through which we must support the poorest countries. We are working closely with International Financial Institutions and partner countries to ensure the action is targeted and timely.
To this effect, the UK has been instrumental in securing an additional $50 billion at the London Summit, which is being made available for Low Income Countries (LICs) to mitigate the effects of the economic downturn.
And on the 15 March 2010, Douglas Alexander announced that the UK government would pledge £200 million to a global social protection fund which would provide immediate help to meet the daily needs of the poorest people in the poorest countries during the economic downturn.
