News & Broadcast - Growth Prospects for Developing Countries Look Strong After Crisis but Problems Linger for Poorest

WASHINGTON, April 4, 2000 Average growth rates for developing countries are likely to reach 4.6 percent in 2000, and climb slightly higher to 4.8 percent in 2001-2002, as their economies start to recover from the 1997-99 global financial crisis, according to a new World Bank report released today. However, not all developing countries will benefit equally in this recovery, which has been fuelled by stronger than anticipated growth in industrial countries, an exceptionally strong recovery in global trade, and higher commodity prices.

Global Development Finance 2000the Bank's yearly report on external financing prospects for developing and transition countriessays that a much larger number of these countries will record positive per capita growth in 2000 than in 1998/99. But it warns that some 41 low-income countries, with a combined population of more than one billion people, will barely cross the threshold into positive growth. This underscores the still fragile path of reform and recovery that lies ahead for these countries.

The report also shows that international capital markets, although recovering, remain risk averse to borrowers in developing and transition countries as a result of the recent financial crisis. In contrast, however, and in one of its most important findings, Global Development Finance says that foreign direct investment (FDI) flows, which remained resilient during the crisis, have become the single-largest and most stable source of long-term development finance for developing countries. These flows have jumped from $US 35 billion in 1991 to US$131 billion in 1996, to US$192 billion in 1999.

"Developing countries are finally starting to recover from the worst impact of the global crisis, but this recovery is uneven," says Uri Dadush, Director of the World Bank's Prospects Group that produces the annual Global Development Finance. "It's time to reflect on the lessons of the crisis to better protect the world economy in the future. One strong conclusion is that we have to take steps therefore to reduce the downside of capital flow volatility."

Dadush says with a differentiated pattern of recovery now underway, growth will be fastest in those countries that rely more heavily on trade, are more diversified, receive more FDI, and those that have achieved greater competitiveness. Several economies in East Asia, EU-accession countries in Eastern Europe, Brazil and Mexico exhibit two or more of these attributes. China and India, with 46 percent of developing country population and 55 percent of the poor, are also expected to sustain fairly rapid growth while grappling with domestic reform issues.

Growth is expected to be slower for oil-exporting countries (largely because of their debt overhang and a projected eventual fall in oil prices), and for agricultural commodity exporters (which face more depressed terms of trade).

Nor is the adjustment to the effects of the global financial crisis complete. Growth in the near term (2000-2002) is likely to remain below pre-crisis trends, except in countries with exceptionally rapid adjustment and recovery. Countries and regions that are adjusting faster because of crisis-induced reforms will gain in the longer-term, but economic frailties exposed by the crisis will take time to overcome.

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Growth Prospects for Developing Countries Look Strong After Crisis but Problems Linger for Poorest