World Bank cuts growth forecasts, offers more financial support for developing countries
November 11, 2008:
Calling for a rapid response to the spreading global financial crisis, the World Bank Group today said it would substantially increase financial support for developing countries, including the launch or expansion of four facilities for the crisis-hit private sector that is critical to employment, recovery and growth.
Making the announcements ahead of a G20 summit this weekend, the World Bank Group said its International Bank for Reconstruction and Development could make new commitments of up to US$100 billion over the next three years. This year, lending could almost triple to more than US$35 billion compared to US$13.5 billion last year. This increase in financial support will protect the poorest and most vulnerable from harm, support countries facing big budget short-falls, and help sustain long-term investments upon which recovery and long-term development will depend.
At the same time, the World Bank lowered its growth forecast for developing country economies to 4.5 percent for 2009, compared to a previous projection of 6.4 percent, due to a combination of financial turmoil, slower exports and weaker commodity prices. It expects high income country economies to contract by 0.1 percent next year while the world economy ekes out only one percent growth.
According to World Bank Group President Robert B. Zoellick. “The response to this crisis must be global, coordinated, flexible and fast. While the challenges need to be addressed at the country level, it is more critical than ever that the international community acts in a coordinated and supportive way to make each country’s task easier.”
Aside from expanded lending, the World Bank Group is also working to speed up grants and long-term, interest-free loans to the world’s 78 poorest countries, 39 of which are in Africa. Donors last year pledged US$42 billion for the International Development Association, the World Bank’s fund for these countries. The Bank is working with the poorest countries to accelerate this support as needed, especially in those countries which had plans to enter capital markets, or are under stress from falling commodity prices, slower export demand or lower remittances.
In addition to helping cash-strapped governments, the World Bank Group is ramping up its support to the private sector through the launch or expansion of four initiatives by the IFC, its private sector arm. Combining IFC funds and money mobilized from various sources including governments and other International Financial Institutions, these new IFC facilities are expected to total around $30 billion over the next three years and address problems experienced by the private sector due to the global financial crisis. They include:
Expanded trade finance program: IFC plans to double its Global Trade Finance Program from US$1.5 billion to US$3.0 billion. The trade guarantees issued under the program will have an average tenor of six months, thereby supporting up to US$18 billion for short-term trade finance over the next three years. The expanded facility would benefit participating banks based in 66 countries, including some of the world’s 78 poorest countries. The program offers banks partial or full guarantees covering the payment risk in trade related transactions.
Bank Recapitalization Fund: IFC plans to launch a global equity fund to recapitalize distressed banks, as more bank failures would further damage economic activity, thus worsening poverty in developing countries. IFC expects to invest US$1 billion over three years with at least US$2 billion provided by other investors.
Infrastructure Crisis Facility: This new IFC facility would provide roll-over financing and help recapitalize existing, viable, privately-funded infrastructure projects facing financial distress. IFC expects over three years to invest a minimum of US$300 million and mobilize between US$1.5 billion and US$10 billion from other sources.
IFC Advisory Services: To address the mounting needs of clients, IFC is refocusing existing advisory services programs—banking for small and medium enterprises, leasing, microfinance, housing, investment policy and promotion, and business operation and regulation--to make them better geared to helping clients in the current crisis. IFC estimates a financing need of at least US$40 million over three years.
IMF Creates Short-Term Liquidity Facility (SLF) for Market-Access Countries
Central banks establish reciprocal currency arrangements
US Federal funds rate cut by 50 basis points to 1%
Subprime Crisis: A Special
CLICK FOR SPECIAL SECTION ON GLOBAL FINANCIAL CRISIS
CLICK FOR MORE FEATURES & STORIES