Developing world may need $700 billion -World Bank
By Lesley Wroughton, DAR ES SALAAM, March 8 (Reuters)
Developing countries could face a financing gap of $270-$700 billion -- equivalent to the latest U.S. economic rescue package -- to help deal with the effects of the global crisis, the World Bank said on Sunday.
The World Bank said even at the lower end of that estimate, resources of international institutions would not be sufficient to meet the financing needs as more and more emerging and developing countries are hit.
"Should a more pessimistic outcome occur, unmet financing needs will be enormous," the World Bank said in a paper prepared for meetings of the G20 group of countries in London in April.
The World Bank spends billions of dollars annually fighting poverty in developing countries.
Last week, the International Monetary Fund said developing countries would need $25 billion, and possibly as much as $140 billion, in 2009 to meet their financing needs.
The World Bank said the crisis threatened long-lasting repercussions for developing countries, struggling to find markets for goods as world trade volumes suffer their first annual decline since 1982, while remittances from overseas workers slow, and falling commodity prices provide less revenue for governments.
"The challenge facing developing countries is how, with fewer resources, to pursue policies that can protect or expand critical expenditures, including on social safety nets, human development and critical infrastructure," the World Bank said.
Until recently, the impact the crisis would have on developing countries was unclear. But recent data has highlighted the potential scale of the damage, prompting institutions like the World Bank and IMF to raise alarm bells.
The worry is that many developing countries will not be able to afford fiscal stimulus packages of their own and will require aid from external sources.
MATURING DEBT RISKS
More immediately, concerns are mounting as to how the rollover of maturing debt in emerging markets will be financed given the global credit crunch, especially for banks and large corporations, which will put financial pressure on governments who themselves are finding foreign capital hard to access.
The World Bank estimates well over $1 trillion in emerging market corporate debt and $2-3 trillion in total emerging market debt will mature in 2009, the majority of which reflects claims of major global banks extended cross-border or through affiliates and branches in emerging markets.
Most of this lending is in foreign currency, and for relatively short terms, meaning currency and maturity risks are primarily on the balance sheet of emerging market banks, corporate and households.
"There is mounting evidence of growing pressure on interbank lines, particularly those extended to the corporate sector. Recent evidence of rollover efforts on public debt of major corporates indeed suggests that even stronger corporates in key emerging markets are struggling," the World Bank said.
It estimated that in 2009, 104 of 129 developing countries will have current account surpluses smaller than private debt coming due. For these countries, total financing needs were expected to amount to more than $1.4 trillion during the year.
External financing needs are expected to exceed private sources of financing (equity flows and private debt disbursements) in 98 of the 104 countries, implying a financing gap -- not taking into account flows from official sources -- in those 98 countries of about $268 billion.
Should rollover rates, or loan renewals, come in lower than expected, or capital flight significantly increase, this figure could rise to almost $700 billion, the World Bank said.
It said the situation could become as severe in poorer countries where falling growth will impact families living just above the poverty line, who are particularly vulnerable.
Many of the worst affected countries are heavily reliant on aid which could be cut as rich nations cope with budget pressures of their own.
"There is a therefore a strong need to expand assistance to (lower income countries) to protect critical expenditures and prevent an erosion of progress in reducing poverty," the World Bank said.
Meanwhile, the likely sharp drop in remittances will affect the incomes of poor families as unemployment rises and more migrant workers lose their jobs in Europe and the United States.
Remittance flows are estimated to have reached $305 billion in 2008, up 9 percent from 2007. World Bank projections suggest remittances to developing countries will fall in 2009, with Africa, Eastern Europe and Central Asia hardest hit.
Developing countries could face a financing gap of $270-$700 billion -- equivalent to the latest U.S. economic rescue package -- to help deal with the effects of the global crisis, the World Bank said on Sunday.
The World Bank said even at the lower end of that estimate, resources of international institutions would not be sufficient to meet the financing needs as more and more emerging and developing countries are hit.
"Should a more pessimistic outcome occur, unmet financing needs will be enormous," the World Bank said in a paper prepared for meetings of the G20 group of countries in London in April.
The World Bank spends billions of dollars annually fighting poverty in developing countries.
Last week, the International Monetary Fund said developing countries would need $25 billion, and possibly as much as $140 billion, in 2009 to meet their financing needs.
The World Bank said the crisis threatened long-lasting repercussions for developing countries, struggling to find markets for goods as world trade volumes suffer their first annual decline since 1982, while remittances from overseas workers slow, and falling commodity prices provide less revenue for governments.
"The challenge facing developing countries is how, with fewer resources, to pursue policies that can protect or expand critical expenditures, including on social safety nets, human development and critical infrastructure," the World Bank said.
Until recently, the impact the crisis would have on developing countries was unclear. But recent data has highlighted the potential scale of the damage, prompting institutions like the World Bank and IMF to raise alarm bells.
The worry is that many developing countries will not be able to afford fiscal stimulus packages of their own and will require aid from external sources.
MATURING DEBT RISKS
More immediately, concerns are mounting as to how the rollover of maturing debt in emerging markets will be financed given the global credit crunch, especially for banks and large corporations, which will put financial pressure on governments who themselves are finding foreign capital hard to access.
The World Bank estimates well over $1 trillion in emerging market corporate debt and $2-3 trillion in total emerging market debt will mature in 2009, the majority of which reflects claims of major global banks extended cross-border or through affiliates and branches in emerging markets.
Most of this lending is in foreign currency, and for relatively short terms, meaning currency and maturity risks are primarily on the balance sheet of emerging market banks, corporate and households.
"There is mounting evidence of growing pressure on interbank lines, particularly those extended to the corporate sector. Recent evidence of rollover efforts on public debt of major corporates indeed suggests that even stronger corporates in key emerging markets are struggling," the World Bank said.
It estimated that in 2009, 104 of 129 developing countries will have current account surpluses smaller than private debt coming due. For these countries, total financing needs were expected to amount to more than $1.4 trillion during the year.
External financing needs are expected to exceed private sources of financing (equity flows and private debt disbursements) in 98 of the 104 countries, implying a financing gap -- not taking into account flows from official sources -- in those 98 countries of about $268 billion.
Should rollover rates, or loan renewals, come in lower than expected, or capital flight significantly increase, this figure could rise to almost $700 billion, the World Bank said.
It said the situation could become as severe in poorer countries where falling growth will impact families living just above the poverty line, who are particularly vulnerable.
Many of the worst affected countries are heavily reliant on aid which could be cut as rich nations cope with budget pressures of their own.
"There is a therefore a strong need to expand assistance to (lower income countries) to protect critical expenditures and prevent an erosion of progress in reducing poverty," the World Bank said.
Meanwhile, the likely sharp drop in remittances will affect the incomes of poor families as unemployment rises and more migrant workers lose their jobs in Europe and the United States.
Remittance flows are estimated to have reached $305 billion in 2008, up 9 percent from 2007. World Bank projections suggest remittances to developing countries will fall in 2009, with Africa, Eastern Europe and Central Asia hardest hit.