ODI: Financial Crisis Hitting Developing World Far Harder than Previously Thought.

Jun 6th, 2009 3:54 PM UTC
By Grace Lamb-Atkinson

Several months after the global financial crisis hit, many news reports suggest that we may be nearing the end of the downturn here in the U.S. Unfortunately, we can’t say the same for developing countries, particularly in Africa. A sobering study from The Overseas Development Institute finds that the global financial crisis is hitting the developing world far harder than previously thought.

In the study, ODI identifies four “transmission belts” through which the effects of the financial downturn reach the countries: trade, aid, private financial flows, and remittances (money emigrants send back to their home countries). Each of these areas has taken a hit from the financial crisis.

Trade results vary from country to country, but ODI says that “the value of trade is declining” everywhere. Regarding financial flows, all countries showed a dramatic drop in portfolio investment. In Africa, banks have tightened credit restrictions and even put the issuing of bonds on hold in some countries. The study found that the money received from remittances had fallen in every country, and may fall up to 14% this year. ODI also found that the crisis directly affects private finances in developing countries.

The study also looked at economic growth in each country. Predicting further dramatic fallout, ODI also reports that economic growth slowed across the board last year, along with significant drops in employment. Forecasts for growth have been revised downward for each country. ODI also predicts that the number of households in poverty in each country will rise far more than they would have without the crisis.

The good news is that, according to the study, there is no evidence so far that the economic crisis is causing a decrease in aid to developing countries. However, ODI claims that there aren’t adequate policy responses for these newly low predictions, and therefore both developed and developing countries need to “ask themselves whether growth and development strategies, economic policies and institutions need a complete rethink in these turbulent times.”

See the report and links to papers on each transmission belt and country here.

-Grace Lamb-Atkinson, ONE U.S. Communications Intern

TAGS: Financial Crisis, Policy News