The world economy is set to contract this year by more than previously estimated, and poor countries will continue to be hit hard by multiple waves of economic stress, said World Bank Group President Robert B. Zoellick today.
Even with the stabilization of financial markets in many developed economies, unemployment and under-utilization of capacity continue to rise, putting downward pressure on the global economy.
According to the latest Bank estimates, the global economy will decline this year by close to 3 percent, a significant revision from a previous estimate of 1.7 percent. Most developing country economies will contract this year and face increasingly bleak prospects unless the slump in their exports, remittances, and foreign direct investment is reversed by the end of 2010.
“Although growth is expected to revive during the course of 2010, the pace of the recovery is uncertain and the poor in many developing countries will continue to be buffeted by the aftershocks,” Zoellick said ahead of the Group of Eight finance ministers meeting in Italy. “Waves of economic pain continue to hurt the developing world’s poor, who have less cushion to protect themselves. There is much more we need to do in the coming months to mobilize resources to ensure that the poor do not pay for a crisis that is not of their making.”
Zoellick noted that, according to revised Bank estimates, the overall financing gap for developing countries will be between $350 billion to $635 billion in 2009, down somewhat from earlier estimates due to improved current account outturns, but still huge amounts.
“Low-income countries that have limited borrowing capacity due to low reserves and drained national budgets will face particular difficulties in getting sufficient finance in the next few years,” Zoellick said. “Because of this, lending from the World Bank, the IMF and other sources will become increasingly important as the crisis rolls across low-income countries.” Zoellick added: “There is not enough public sector money to solve the global crisis, so the recovery strategy needs to encourage private business and financing too.”
The crisis implications for poor countries are stark, and driving expanded use of World Bank resources. Requests for assistance are up at the International Development Association (IDA), part of the World Bank Group that focuses on the 78 poorest countries. For fiscal year 2009, which ends on June 30, IDA grants and interest-free loans are expected to total more than $13 billion, a record high, and an increase on last year’s $11.2 billion. Anticipating the needs of the poorest countries, the World Bank created a fast track facility in December to provide rapid funding for social safety nets, infrastructure, education, and health.
Demand has also grown rapidly at the International Bank for Reconstruction and Development (IBRD), the part of the World Bank Group that supports creditworthy low and middle-income countries. Loan volume is expected to increase to around $33 billion this fiscal year, compared to $13.2 billion last year.
Zoellick said it was important that the G8 meetings this month and in July follow-up on the promises made at the Group of 20 meeting in London in April to restore domestic lending and the international flow of capital.
Zoellick said some of the main risks still remaining included the need to clean up the balance sheets and recapitalize banks, address the unique financial risks in Central and Eastern Europe, guard against a rise in protectionism, and roll over large amounts of private sector debt in developing countries.
The World Bank Group actively monitors global economic figures. On June 22, the Bank will release Global Development Finance 2009: Charting a Global Recovery.

Economic Crisis Threatens Gains Made in HIV Prevention and Treatment

As global and local partners gather at the 2009 HIV/AIDS Implementers Meeting in Namibia, the global economic crisis is threatening hard-fought gains in human development and poverty reduction. With low-income countries increasingly vulnerable to slowing GNP growth, declining private capital flows, reductions in remittances and tourism, and weak commodity prices and export markets, the crisis is now threatening national HIV/AIDS prevention and treatment programs. Developing countries and their partners must help mitigate the effects of the economic crisis on health and on AIDS programs. Allowing HIV/AIDS prevention and treatment programs to lose ground would have negative consequences far into the future. HIV prevention efforts are at greater risk than ever. Preliminary data from a recent UNAIDS-WHO-World Bank survey of staff working in 71 countries showed that nearly half (in countries with 75 percent of people with HIV worldwide) expect prevention programs for people most at risk to be affected by the crisis. This is extremely worrying - less prevention will mean higher future treatment needs with larger future cost implications. The social and economic costs of HIV are already very high. Optimizing the HIV response requires increased emphasis on more efficient use of available resources, better targeted prevention, and addressing the social drivers of HIV transmission. Treatment for most of the 3.4 million people already on antiretroviral therapy (ART) in the surveyed countries seems secure for now, but 11 percent of respondents reported that the global crisis is already impacting treatment programs. Respondents in twenty-two countries, where 61 percent of those on treatment live, expect an impact on treatment this year. There is a strong risk that a planned scale-up of treatment access for the two-thirds of people with HIV who need it but are not getting it will not take place. Respondents report budget cuts and great uncertainty about future funding, job losses and decreased household incomes, and increased cost of antiretroviral drugs due to weakened local currencies. The joint UNAIDS/World Bank report, The Global Economic Crisis and HIV Prevention and Treatment Programmes: Vulnerabilities and Impact, will be released in Geneva in late June/early July. Much is at stake. Unplanned interruptions to treatment could increase the risk of HIV transmission and foster drug resistance. This could mean higher future treatment costs, increased burden on health systems, and reversal of economic and social gains made in previous years. Data from the World Bank indicate that economic growth in developing countries is expected to slow sharply to 2.1 percent this year, a more than three percentage point decline from last year. An estimated 53 million more people could be trapped in poverty, subsisting on less than $1.25 a day because of the crisis. Global trade in goods and services could fall six percent this year, the largest decline in 80 years. In Africa, this fall in trade badly affects countries with economies dependant largely on exports of minerals and other commodities. A new World Bank report, Averting a Human Crisis During the Global Downturn: Policy Options from the World Bank's Human Development Network, shows that during previous economic crises, developing-country governments reduced spending on health, education, and social programs. To avoid a repeat of this, the World Bank has recommended creation a Vulnerability Fund to help countries continue to help their poorest. "This fund could speed resources to existing World Bank, United Nations and regional development bank safety-net programs that give the poor access to health, education and nutrition services; build infrastructure such as roads, bridges and low-carbon technology projects; and support small and medium-size businesses and microfinance institutions that lend to the poor," said Mr. Zoellick, calling for support for the fund earlier this year. The World Bank is mobilizing up to $3.1 billion this year in health financing to help poor countries battle threats to their social services during the global economic crisis. This effectively triples Bank support from $1.0 billion last year and will be used to strengthen health systems in poor countries, boost their performance in preventing and treating communicable diseases, and improve child and maternal health, hygiene, and sanitation. The Bank plans to double its education financing this year in low- and middle-income countries to $4.09 billion, and its investments in social protection programs, including social safety nets, are expected to rise dramatically for 2009-2010 to $12 billion. "The World Bank will work with all partners to mitigate the impact of the economic crisis. The poor and most vulnerable must be protected and not become the victims," emphasized Elizabeth Lule, Manager of the World Bank's AIDS Campaign Team for Africa (ACTafrica), who is attending the HIV/AIDS Implementers Meeting and will chair a session on the effect of the economic crisis on the international response to HIV and AIDS. If prevention efforts and access to ART become more limited, there will be more HIV infections, more people who need but cannot get treatment, more strain on families and communities, and a resurgence in AIDS deaths. Lule says to maintain and expand access to HIV treatment, care, and prevention, developing countries and their partners should:
Make existing funding work more efficiently by reallocating resources from low- to high-impact prevention programs and by making programs more cost-effective;
Address urgent funding gaps by providing bridge financing to avoid cash flow and supply interruptions and by including an appropriate base level of funding for HIV as part of emergency budgetary support and social protection packages;
Plan for the longer term with contingency planning and by seeking better financial sustainability and longer-term funding commitments from domestic and external financing sources; and
Provide social safety nets for the most vulnerable and poor.
"It is crucial that the global community-developing and donor countries, civil society, charitable groups, and the private sector-work together to ensure that funding for HIV programs remains on track toward universal coverage because the price of not doing so is too high to accept," said Lule.
* * * * *As one of ten co-sponsors of UNAIDS, the World Bank helps shape the global response to HIV, in partnership with governments, NGOs, other agencies and foundations, and the private sector.
For more information, visit www.worldbank.org/aids and www.worldbank.org/afr/aids .Download Averting a Human Crisis at http://siteresources.worldbank.org/NEWS/Resources/AvertingTheHumanCrisis.pdf