The Global Financial Crisis: What Does It Mean for Developing Countries?

November 20, 2008—We've been hearing a lot of talk lately about the global financial crisis. What is behind the crisis, and how will it impact the fight against poverty?

Right now, things aren't looking good. According to a World Bank paper, Global Financial Crisis and Implications for Developing Countries (PDF), no country, developing or industrial, has escaped the impact of the widening crisis, and the poor will be hit hardest. Many developing countries are entering a danger zone, facing a cycle of influencing factors:

• Fall in GDP growth. Economic growth in developing countries is already slowing and is expected to drop still more. Exports to developed countries are falling, capital is being withdrawn from emerging markets, and foreign investment is drying up. It is also forecast that global trade will shrink in 2009, and all of this will hinder governments' ability to invest in education, health and other critical social services.
• Decline in remittances. Remittances—the flow of money that workers send to their home countries—began slowing in the second half of 2008 and is projected to fall sharply in 2009. This has serious implications, because remittances are a powerful mechanism for reducing poverty. For example, in Nicaragua remittances reduce the incidence of poverty by 4 percentage points, and in Albania, the incidence of poverty in households with migrants living in Italy and Greece is half the national rate. The global financial downturn could also cause job losses in the developed world, especially in sectors with a high concentration of migrants (for example, construction, retail, and catering). This, plus lower oil revenues in Gulf countries, will decrease migrant earnings globally.
• Increases in the number of extremely poor. As a result of relatively high food and fuel prices, the World Bank projected an additional 100 million people would be pushed into extreme poverty, and an additional 44 million people would face malnutrition. Following on the heels of food and fuel price increases, the global financial crisis is expected to further setback the fight against poverty.

These are just some of the causes and effects of the financial crisis. The good news is that world leaders are beginning to take joint action to ease the global burden.

What's Getting Done?

On November 15, 2008, heads of state and finance ministers met in Washington, DC to discuss ways to tackle the crisis. They decided on short-and medium-term actions regarding regulation, risk management, promoting integrity, reinforcing international cooperation and reforming international financial institutions. At the close of the meeting, leaders released a joint statement, saying "we are determined to enhance our cooperation and work together to restore global growth and achieve needed reforms in the world's financial systems."

How is the global financial crisis affecting young people in your country? What kind of changes are you seeing? What are people saying? Tell us about it (fill in the form in the right column) and/or email us your photos.

World Bank President Robert Zoellick called the meeting a positive step forward, but emphasized that "the poorest developing countries must not be left out in the cold." Calling for decisive next steps, he said, "If we are going to avert a human crisis, we will have to do more. At $100 billion a year, the amount spent on overseas aid is a drop in the ocean compared to the trillions of dollars that are now being spent on financial rescues in the developed world."

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