Crisis update -90 million to be pushed into poverty by 2011
26 March 2009
The financial crisis and subsequent economic downturn will push a further 90 million people into poverty in poor countries around the globe.
By December 2010 the number of people living on less than $1.25 a day will be about 90 million higher because of the far-reaching impacts of the financial crisis [i].
The food price hike over 2005-08 pushed an additional 130 million people below the $1.25 a day poverty line, according to the World Bank, and increases in oil prices an estimated 25 million into poverty over the last two years.
While the food and oil crises are starting to ease, we do know that some people and countries were hit hard especially by the food price crisis and so enter the economic crisis in a seriously weakened state.
People in low-income countries have so far been relatively well-protected from the financial storm engulfing the developed world because they aren’t as exposed to global financial markets.
However, many developing country and emerging economies are already seeing falls in demand for exports (world trade will fall by 2.8% in 2009 [ii] - the first time in 25 years [iii]), remittances and capital flows.
Capital flows to developing and emerging countries are also expected to fall by 80% – from $929 billion in 2007 and $466 billion in 2008 to $165 billion in 2009. This is largely because there is a move away from what is seen as “risky” assets in developing countries and because of pressure on banks in rich countries to prioritise domestic borrowers over foreign lending. As rich governments issue an expected $3 trillion in government bonds this year, there is a growing fear that developing countries will miss out more and more.
It is these “second wave” impacts of the crisis which have the potential to slow economic growth and development over the next few years. But this also presents us with an opportunity to help developing countries grow better and more sustainably.
[i] DFID estimate based on World Bank poverty number of 1.374 bn for 2005. A
1% fall in economic growth increases poverty by 20 million. This combined with
estimate that developing country growth will be 4.5% less gives overall result
of 90 million.
[ii] World Economic Outlook update January 2009, IMF
[iii] World Economic Outlook online database, IMF
Impacts from economic downturn starting to be felt in developing countries
While there is still a high degree of uncertainty about the depth and duration of the crisis, DFID offices in Bangladesh, Nepal, Vietnam, Tanzania, Zambia and South Africa all now report some second round impacts. Some of these effects include falls in export demand, rising unemployment and falling national incomes. Many of these impacts are negative, although there are emerging positive impacts especially from lower oil prices. A summary list of impacts is below.
At the top of this list are increasing concerns about trade-restricting and protectionist measures that have been put in place by governments to protect domestic economies. According to some counts, more than 47 trade-restricting measures have been put in place in different countries across the globe in recent months. In developed countries, this has mostly been in the form of subsidies to particular industries such as car-making and agriculture. This can help to make domestic products and services cheaper compared to overseas imports and, in the longer run, affect the ways in which firms behave because they feel partly protected from the consequences of bad decisions.
Some developing countries have resorted to increased tariffs and import bans. Others have implemented non-tariff barriers by, for example, placing limits on the number of ports and airports that can serve as entry points. There have also been moves to tighten migration regulations.
Meanwhile the IMF has launched a new study, entitled "The Impact of the Financial Crisis on Low-Income Countries". The study claims that more than 20 countries are particularly vulnerable to the unfolding crisis and that at least US $25 billion will be needed this year in the most affected countries.
It is uncertain how long developing countries will take to recover. Low-income countries are having to "wait and see" whether the fiscal stimulus packages and other interventions, especially in Western Europe and the US, restore growth and demand for their exports.
Emerging economies are already unveiling their own stimulus packages. India has announced its third stimulus package, focusing on reviving consumer demand through tax cuts. Meanwhile, China has launched its own 4 trillion-yuan ($585 billion) stimulus package.
What is certain is that rapid and widespread protectionism will worsen the impacts of the downturn on developing countries. We must keep markets open and especially developed countries should lead by example, and refrain from trade-restricting measures. Many poor people rely on selling their products to other countries to make a living. As developed countries put barriers to trade in place, the ability of producers in developing countries to make a living is greatly reduced.
Country impacts
South Africa
- National income fell in the last quarter of 2008 and it looks unlikely that the country will avoid a recession.
- Investments in mining, and demand for mineral exports, are reduced leading to unemployment and lower growth.
Five thousand five hundred jobs have been lost at two platinum mines (Lonmin).
Tanzania
- Economic growth will fall by between 2 and 5 percentage points in 2009.
- The country should be able to avoid cutting priority programmes for now.
- Investments in mining, and demand for mineral exports are deteriorating, leading to unemployment and lower growth.
- Gold, which Tanzania exports, is expected to rise by 15% in price, and savings on oil imports this year will be worth more than 100% of foreign direct investment.
Bangladesh
- Remittances were the highest on record in January, although growth has recently been slowing.
- The number of workers leaving the country has fallen, with the new migrant figures for January and February being down around 40% compared with the same period last year.
- Several export sectors (e.g. leather, jute and frozen food) are seeing exports fall; but garment exports were strong enough to drive total exports 4.2% higher in the November to January quarter compared with the same period last year.
Nepal
- In January the number of workers leaving the country for jobs has halved compared to last year.
Vietnam
- In the last quarter of 2008, exports were down a quarter on last year.
Jamaica
- Expected to move into recession because declines in tourism have led to negative economic growth (-0.5%).
Zambia
- Mining investment and demand for mineral exports deteriorating leading to unemployment and lower growth - 4,900 mining jobs have been lost.
DRC
- Mining investment and demand for mineral exports deteriorating, leading to unemployment and lower growth.
Botswana
- Five hundred and eighty workers affected by announcement to close four De Beers and government-owned diamond mines – two for the entire year.
China
- Twenty million migrant workers have returned home from manufacturing firms because of declines in export demand.
- Exports tumbled by one-quarter in February compared to a year earlier, with imports - many of them from other countries in the region - falling only slightly less. The stimulus package has brought on a large increase in investment though and new car sales are up by a quarter on a year earlier as well.
Kenya
- Has abandoned plans to issue an international sovereign bond which aimed to raise £300 million.
Brazil
- Mining company Vale cuts 1300 jobs, as have several other companies, including car manufacturers. Petrobas, Brazil’s government-controlled oil company is delaying investment plans.
India
- Seven hundred thousand jobs have been shed in the garment industry alone, and there have been over 1 million lost jobs in total over the course of 2008.
The London Summit 2009 website
