While the current-account positions of oil-importing developing countries are expected to improve over the course of 2009, deficits in a number of countries remain exceptionally high. More than 43 low- and middle-income countries registered current-account deficits in excess of 10 percent of GDP during 2008.
In years past, these deficits were relatively easily financed by strong capital inflows. However, the financial crisis has sharply curtailed such flows, with total private inflows projected to decline from more than $1 trillion in 2007 to just $360 billion in 2009. At the same time, the external financing requirements of developing countries are expected to have increased, implying a financing gap of between $350 billion and $635 billion in 2009. The effects of this shortfall have already been manifested in the pressures on the banking sector and currencies of a number of developing and high-income countries. Several countries have opened lines of credit with the IMF, while others are meeting shortfalls by reducing their international financial reserves. Many developing countries have seen their reserves fall by 20 percent or more since September 2008.
For several, the decline in reserves followed an earlier period of accumulation, and reserve levels remain comfortable. But for at least 18 countries, reserves have been depleted to the point where they no longer cover four months of imports (figure 1.14). In most of these countries, reserve levels have stabilized more recently, but in at least five, reserves continued to decline by 5 percent or more a month during the first quarter of 2009. Other countries have been forced to deal with much tighter borrowing conditions and large current-account deficits by reducing imports and current-account deficits. Fully 20 countries whose current-account deficits in 2008 totaled 10 percent or more of GDP are expected to undergo internal adjustments that lower that deficit by 6 percent or more of GDP.
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