Aid To Poor Nations Hit By Eurozone Crisis

01/18/2012 20:30

SkyNews:  The World Bank has urged developing countries to prepare for big shortfalls in aid as economies around the world continue to suffer from the effects of the eurozone crisis.

In its six-monthly report on the global economy, it said international finance to developing countries plunged 45% in the second half of 2011, from $309bn (£201bn) to $170bn (£111bn) during the same period the year before.

"Developing countries need to evaluate their vulnerabilities and prepare for further shocks, while there is still time," the bank’s chief economist Justin Lin said.

He said the eurozone sovereign debt crisis "appears to be contained".

But he added: "The risk of a global freezing-up of the markets and as well as a global crisis similar to what happened in September 2008 are real."

The World Bank has cut its growth predictions for the global economy to 2.5% this year and 3.1% in 2013.

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In its last report in June, it had predicted 3.6% for both years, saying at the time: "The financial crisis for most developing countries is over".

The report added that it was likely Europe was already in recession and that growth numbers will be much worse if the euro crisis deepens.

"An escalation of the crisis would spare no-one. Developed and developing-country growth rates could fall by as much or more than in 2008/09," warned Andrew Burns, the lead author of the report.

"The importance of contingency planning cannot be stressed enough."

The bank is particularly concerned as developing countries have less monetary flexibility to respond than a few years ago if international funding falls through and global conditions deteriorate sharply.

The report comes as charities urged governments around the world to work to prevent future catastrophes in developing nations.

Thousands of people lost their lives due to a slow response from the developed world to the East Africa famine.

Hans Timmer, director of development prospects, said: "We think it is now important to think through not only slower growth but sharp deteriorations, as a prudent measure."

Nonetheless, the bank expects developing economies to grow by 5.2% in 2012, while those of high-income countries expand by just 1.4% and the eurozone contracts by 0.3%.

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