Development & Aid, Economy & Trade, Eye on the IFIs, Financial Crisis, Food and Agriculture, Global, Global Geopolitics, Global Governance, Headlines, Poverty & SDGs

DEVELOPMENT: World Bank Steps Up Funding for “Safety Nets”

Marina Litvinsky

WASHINGTON, Apr 21 2009 (IPS) - The World Bank plans to triple its lending for social safety nets in poor countries to 12 billion dollars over the next two years in order to better protect the most vulnerable people from the worst effects of the global economic crisis, the bank announced Tuesday.

The bank’s initiative reflects increasing concern that the current crisis is pushing millions more people in the developing world into poverty, effectively reversing gains that have been made in raising the incomes of the more than 1.4 billion people who live on the equivalent of only 1.25 dollars a day.

“A world that doesn’t learn from history is condemned to repeat it,” said World Bank President Robert B. Zoellick. “While the recent G20 meeting focused on financial issues, we need to learn from the history of past crises, when governments squeezed for cash cut into social programmes with often devastating impacts on the poor.”

“Most attention in the current crisis has been focused on developed countries where people face the loss of homes, assets and jobs. These are real hardships,” said Zoellick. “But people in developing countries have much less [of a] cushion: no savings, no insurance, no unemployment benefits, and often no food.”

As part of the new initiative to mitigate the effects of the current crisis on the poor, the bank’s executive board approved an increase in the rapid financing facility for food from 1.2 billion dollars to 2.0 billion dollars.

The move comes less than a year after the bank set up the facility as part of a Global Food Crisis Response Programme (GFRP) designed to deal with the sharp increase in food prices from 2007 to mid-2008. The World Bank has committed 1.18 billion dollars in projects in 36 countries under the facility to date.

“The continuing risky economic environment, combined with continuing volatility for food prices, means for poor people the food crisis is far from over,” said World Bank Managing Director Ngozi Okonjo-Iweala. “Many poor countries have not benefited from some moderation of food price spikes in global markets. The decision to expand the facility will help ensure fast-track measures are in place for continued rapid response to help countries.”

Tuesday’s announcement, which comes on the eve of the annual spring meetings this weekend of the boards of governors of both the Bank and the International Monetary Fund, follows last month’s publication by the bank of its latest projections of the depth and duration of the current economic crisis. It predicted that global economic growth in 2009 will decline for the first time since the Great Depression and that 2010 may not offer much relief.

Most of this year’s negative growth will take place in the world’s industrialised nations whose gross domestic product (GDP) is expected to fall three percent, according to the bank’s latest edition of “Global Economic Prospects” (GEP) released late last month.

But developing countries will also be hit hard, with their overall growth rate falling from nearly six percent last year to just over two percent in 2009. Globally, an estimated 53 million more people would be forced to subsist on less than the equivalent of 1.25 dollars a day due to the ongoing crisis, the bank said.

Global industrial production has already fallen 15 percent since the onset of the crisis, while trade in goods and services is expected to fall 6.1 percent in 2009, according to Hans Timmer, who directs the Global Trends division of the Bank’s Development Prospects Group.

While economies specialised in capital goods production – notably Japan, Germany and Taiwan, among others – have been especially hard hit, countries whose economies are dependent on commodity exports, which include many of world’s poorest nations, have also suffered significantly and are unlikely to recover quickly.

The price of oil is likely to remain more than 50 percent of 2008 levels – averaging around 47 dollars per barrel – through 2009, while the decline in non-oil commodity prices is projected at more than 30 percent compared last year.

Economic contraction among developing countries will be particularly severe in Europe and Central Asia (ECA) where growth rates are projected to fall from 4.2 percent last year to minus two percent in 2009. Latin America and the Caribbean (LAC) will also suffer negative 0.6 percent growth this year – after growing 4.2 percent in 2008 – with Mexico (minus two percent) and Argentina (minus 1.9 percent) among the worst affected, according to the report.

By contrast, the Middle East and North Africa will be the least affected by the downturn, dropping just 0.3 points from earlier projects of 3.3 percent growth in 2009.

In Sub-Saharan Africa, GDP growth this year is expected to halve from nearly five percent in 2008 to 2.4 percent, which will not keep pace with population growth.

“If the global economy continues to deteriorate, the pressure on African countries is going to be huge,” said Justin Yifu Lin, the bank’s chief economist and senior vice president for development economics.

World Bank investments in social protection are expected to rise dramatically for 2009-2010 to 12 billion dollars, up from 4.0 billion dollars over the two years that preceded the crisis. This lending includes rapid social response programmes and conditional cash transfers, where families are granted money transfers in exchange for sending their children to school and for regular medical check-ups.

Zoellick said increasing investments in social protection programmes has been found to be effective in both stimulating spending and protecting the poor at a relatively low cost, often less than one percent of a country’s gross domestic product (GDP).

The development group Oxfam International supports the bank’s move, but expressed concern over whether the funds will be diverted from other key programmes and whether the bank attaches conditions to its disbursement.

“We welcome (this announcement), but we want to make sure that it’s new additional money, not a diversion from existing commitments,” said Marita Hutjes, senior policy advisor at Oxfam International. “We would also want this assistance to come without harmful economic conditions attached.”

She added that the money should come on concessional terms so that the loans won’t “add to the debt burden of countries.”