19 February 2009
The last decade has seen great strides forward for development, thanks to a combination of political leadership and sustained economic growth in a number of countries. This economic growth, together with commitments from donors to cancel debts and increase aid, has underpinned a far better quality of life for millions of our global neighbours. Yet some of the progress we have seen is at risk of being undone because of the economic downturn.
The financial crisis will hurt us all, but it will hurt the world’s poorest the most. We estimate up to 90 million more people will be living in poverty by 2010.
The poorest are least able to protect themselves. Lower prices for their goods, job losses and less money sent home from family members abroad will leave poor people with less to spend on food. They’ll have to find ways to compensate, such as taking their children out of school. Mothers are likely to eat less themselves so they can feed their youngest – malnourished babies often end up with long term brain damage which hinders their ability to earn a living as adults.
Longer term development prospects will also be affected. There will be less money for governments to meet their spending plans on health, education and infrastructure such as roads and power generation.
For India, which accounts for a third (over 450 million) of the world’s poor, the expected slowdown in economic growth means that 9–12 million people who would otherwise have escaped poverty will remain below the $1.25 a day poverty line.
This is because there will be less demand and lower prices for exports, potential reductions in development aid and less money available for governments and businesses to borrow. As World Bank President Bob Zoellick has said: “this is not only a financial crisis; it’s a human crisis as well.”
The crisis has already hit many of the emerging markets. Bank lending and foreign investment have fallen, currency values have plummeted and demand for exports shrunk. This has had knock-on effects on output, incomes and employment.
Most poor countries are only now starting to experience the full impact of the crisis and the effects are expected to multiply over the coming months. Private financial flows to emerging and developing countries could fall by over 80%, from $1 trillion to around $165 billion. As world trade shrinks this year for the first time since 1982, developing country export growth could fall from 9% in 2007 to -1% this year and 5% next year. Remittances to developing countries – at around $280 billion a year – will stop growing and most likely decline. As these factors lower tax revenues and growth expectations fall, domestic business and consumer confidence is likely to decline, further affecting growth.
Each country has unique circumstances, so damage from the crisis will be uneven around the world. Nonetheless we estimate that each year after 2010 developing country incomes will be roughly 5% less.
In Ethiopia DFID is providing social protection which sustains the livelihoods of over 7 million. We have provided an additional £15m (over our planned annual contribution of £25m) to cover the higher costs of social protection due to the rising prices and food shortages. We have also made additional money available for Bangladesh and Mozambique and have recently started to scale up social protection in Kenya, providing cash transfers to 90 thousand households over the next 12 months. In addition, emergency aid is also being scaled up as a response to the food supply shock being faced by both Kenya and Ethiopia.
The World Bank and other multilateral development banks are already helping the poorest countries, but the international community needs to do much more. DFID is responding by allocating additional resources in Africa – including an additional £15 million for safety nets helping over 7 million people in Ethiopia; and working with partners to strengthen existing programmes in Asia – including guaranteeing a microfinance programme which will now reach 200,000 additional poor families in Pakistan. DFID will continue to work to help the poorest through the downturn.
In Bangladesh DFID has brought forward a planned £2 m commitment to the BRAC Education Programme to help keep 100,000 children in school this year.
Most importantly though, we are calling on, the international community to:
The London Summit (2 April) on Stability, Growth and Jobs will bring together the leaders of the world’s major economies and global economic institutions to address the crisis, as requested at the Washington Summit last November. The UK expects the London Summit to take steps to protect the poorest countries and most vulnerable people from the impacts of the global recession.
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