Swimming against the tide: How developing countries are coping with the global crisis

Background Paper prepared by World Bank Staff for the G20 Finance Ministers and Central

Publisher : World Bank
Publication date: March 2009
Number of pages: 21
Language: English



Overview/abstract

“Impact on the Poor and Most Vulnerable - What does this mean for the poor? The economic crisis is projected to increase poverty by around 46 million people in 2009. The principal transmission channels will be via employment and wage effects as well as declining remittance flows. While labor markets in the developing world will take a while to experience the full effects of the on-going global contraction, there is already clear evidence of the fall-out.

The latest estimates from the Ministry of Labor in China show 20 million people out of work. So far, the most affected sectors appear to be those that had been the most dynamic, typically urban-based exporters, construction, mining and manufacturing. The garment industry has laid off 30,000 workers in Cambodia (10% of workforce) where it represents the only significant export industry. In India, over 500,000 jobs have been lost over the last 3 months of 2008 in export-oriented sectors—i.e., gems and jewelry, autos, and textiles. ILO forecasts suggest that global job losses could hit 51 million, and up to 30 million workers could become unemployed.

Workers are increasingly shifting out of dynamic export-oriented sectors into lower productivity activities (and moving from urban back into rural areas). These trends are likely to jeopardize recent progress in growth and poverty reduction resulting from labor shifting to higher return activities. Declining remittances and migration opportunities are also undermining poverty gains and depressing wages. Falling real wages and employment impede households’ ability to provide adequate food and necessities to their members

Experience from past crises suggests the potential for a slowdown in progress towards the MDGs (Figure 7). Even prior to the crisis, most human development MDGs—especially for child and maternal mortality but also primary school completion, nutrition, and sanitation—were unlikely to be met.’

Protecting the Vulnerable. Inevitably, the crisis will impact social and human development objectives. Declining growth rates combined with high levels of initial poverty leave many households in developing countries highly exposed to the crisis. The Bank estimates that of 116 developing countries, 94 have experienced decelerating growth, of which 43 experience high levels of poverty. This implies new spending needs and may warrant a re-prioritization of existing public spending.”

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