The global financial crisis has been having a telling impact on the economies of many countries, particularly the larger economies, causing severe economic hardship on their populace with the hardest hit being the working class and the poorer sections of society. A new World Bank report, “Global Economic Prospects 2010: Crisis, Finance, and Growth,” notes that the crisis is having serious cumulative impacts on poverty, with 64 million more people expected to be living in extreme poverty by the end of 2010 than would have been the case without the crisis, according to updated analysis.
“An increase in poverty has serious implications for the governments of poor countries, who face shrinking revenues at the very time when demands on them are growing,” said Andrew Burns, the report’s lead author. “Just when a bigger effort is needed to protect vulnerable people, some governments may be forced to scale back existing programmes.”
In fact, the poorest countries—those that rely on grants or subsidized lending—may require an additional $35 billion to $50 billion in funding just to maintain pre-crisis programs, according to World Bank chief economist and senior vice-president for development economics, Justin Lin.
The tragic human cost of the financial crisis is already becoming painfully apparent. Researchers Jed Friedman and Norbert Schady estimate, for instance, that between 30,000 and 50,000 additional children may have died of malnutrition in Africa in 2009 because of the crisis.
While the world economy is now emerging from the crisis, and GDP growth rates are starting to improve, the report warns that growth may in fact slow later this year as the growth impact of stimulus packages wanes, and that it will be years before jobs are restored and spare industrial capacity reabsorbed.
Global GDP, which declined by 2.2 percent in 2009, is expected to grow 2.7 percent in 2010 and 3.2 percent in 2011. World trade volumes, which fell by a staggering 14.4 percent in 2009, are projected to expand by 4.3 and 6.2 percent this year and in 2011, according to the report.
“The strength of the recovery will depend on consumer and business-sector demand picking up and the pace at which governments withdraw fiscal and monetary stimulus,” said Burns. “If this is done too soon, it might kill the recovery; yet waiting too long might re-inflate some of the bubbles that precipitated the crisis.”
Developing countries are expected to make a relatively robust recovery, with 5.2 percent GDP growth in 2010 and 5.8 percent in 2011—up from 1.2 percent in 2009. Rich countries, which declined by 3.3 percent in 2009, are expected to grow less quickly—by 1.8 and 2.3 percent in 2010 and 2011.
Performance across the developing world has been varied. The recession has been severe in Europe and Central Asia, while, in contrast, growth continues to be relatively strong in East Asia and the Pacific. South Asia and the Middle East and North Africa have escaped the worst effects of the crisis, while Sub-Saharan Africa has been hard hit, with the outlook for the region remaining uncertain.
Despite the raving and ranting by some of the cynics in our midst, undoubtedly our country because of sound and prudent macroeconomic management has demonstrated a high degree of resilience in the global financial turbulence and has emerged relatively unscathed compared to what has happened elsewhere.
Of course the fall out of the financial crisis has inevitably impacted adversely on our economy but it has withstood the shocks experienced by other economies because of sound economic and financial management. And this is even more striking against the backdrop of the financial crisis coinciding with the end of preferential prices for our sugar and drastic cuts in prices and the sugar industry being our largest one.
The sound and prudent macro economic management has been acknowledged by the International Monetary Fund (IMF) which by no means can be described as a friend of this government.
THE IMF says Guyana has weathered the impact of the global crisis well by regional and global standards and it has sustained a solid macroeconomic performance supported by prudent policies. The fund’s Executive Directors, following the IMF’s latest assessment last month, commended the commitment of local authorities to further entrench macroeconomic stability and fiscal sustainability, while promoting long-term growth and development to improve the country’s standard of living and reduce poverty.
In a press release, they observed that the strong fiscal consolidation in 2009 provides space for a more gradual tightening over the near term to support infrastructure investment and growth.
“A cautious fiscal stance remains nevertheless warranted given remaining vulnerabilities. Directors therefore supported the authorities’ commitment to maintain prudent expenditure policies and to continue implementing structural reforms aimed at safeguarding fiscal sustainability”, the fund said.
The IMF Executive Directors welcomed Guyana’s efforts to achieve sustainable long-term growth, including under the Low Carbon Development Strategy (LCDS).
They noted that continued modernization of the sugar sector and diversification of Guyana’s productive base are key to sustaining growth.