The global financial crisis and developing countries Initial results

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The global financial crisis and developing
countriesInitial results

• Dr Dirk Willem te Velde
• Overseas Development Institute
• ECORYS conference, Rotterdam, 16 April 2009
• Rethinking the Development Agenda in the
  Perspective of the Global Crisis

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The global financial crisis and 10 developing
countries
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Methodology (simplified version)
Global shock (Private capital flows, trade,
migration/remittances, aid)
National shock (Private capital flows, trade,
migration/remittances, aid)
Macro effects (growth, development and debt)
Policy responses Short-term (economic and
social), long-run (economic)
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Transmission belt (1)Private financial flows

• Stock market declines everywhere (30-50 since
  start GFC)
• Bond issuances put on hold in Ghana, Kenya,
  Uganda
• Portfolio investment flows badly affected
• FDI has been more resilient but plans put on
  hold
• Ghana, Benin and to some extent Zambia have
  experienced decreases in both FDI and portfolio
  investment inflows.
• There is little evidence so far of a drop in
  banks international claims, but some countries
  are vulnerable

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Transmission belt (2)Portfolio flows and stock
markets
Uganda Portfolio Investment declines, 2006-2008
Nigeria Stock Market Declines, 2002-2009
Source Uganda Country Case Study
Source Nigeria Country Case Study
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Transmission belt (2)Trade different shocks

• Open countries (Cambodia, Ghana, Uganda, Zambia)
  and and more protected countries (Bangladesh,
  Nigeria). Most countries depend on a few export
  products
• Different types of export shocks
• Commodity price shock affecting Nigeria, Bolivia,
  Benin, Zambia, but also Uganda, Ghana, and Kenya
• Manufacturing volume shock (e.g. garments),
  affecting Cambodia, and to some extent,
  Bangladesh
• Tourism receipt shock (Kenya, Cambodia)
• Multiple shocks of declining commodity prices and
  lower demand for simple manufactured, affecting
  Indonesia.

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Transmission belt (2)Trade export concentration
Cambodia garments exports (mn USD)
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Transmission belt (2)Trade prices Bolivia
Export values (US mn)/ volumes Fiscal balance
(red if 2004 commodity prices)
Source Central Bank of Bolivia Unidad de
Programaación Fiscal (UPF)
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Transmission belt (2) Remittances

• Dependency on remittances varies
• Remittances likely to decline due to lower
  emigration flows or stocks (Bangladesh,
  Cambodia). In Bangladesh, emigration fell by
  38.8 between February 2008 and February 2009.
• Reduction of remittances in some countries. In
  Kenya, remittances were down 27 in January 2009,
  compared to January 2008, after a year of
  volatility.
• Remittances, 000 US, Kenya
• (Jan2004- Feb 2009)

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Transmission belt (2) Aid

• Some countries are more aid dependent (e.g.
  Bangladesh) than others (e.g. Kenya). So far
  little evidence of a pull out
• In Bangladesh, gross disbursement falling 8 from
  903.2 million in FY2007-08 (July-December) to
  898.3 million in FY2008-09 (July-December). But
  highest ever commitments.
• But there have been declines in aid in Uganda
  (official and NGO aid)

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Effects on growth

• Effects differ (e.g. vulnerability, openness,
  sectoral distribution, growth constraints). Kenya
  from 7 in 2007 to 3-4 in 2008 and 2009,
  Cambodia from 10 to 0

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Development and poverty

• Too early to assess fully, but stresses have
  appeared
• Significant job losses.
• Cambodia has already lost 51,000 garments jobs
  (around 15 of garment workers). 15,000 lost in
  construction.
• Zambia lost 8,100 (25) of 30,000 mining jobs in
  2008.
• Remittances play a key role, but declining in
  countries
• Rural-urban shocks and gender challenges (e.g.
  Urban manufacturing job losses in Cambodia)

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Economic policy responses differ

• Economic policy responses vary widely, from
  business as usual to more pro-active
  approaches
• Implementing / accelerating long term growth
  policies (e.g. Cambodia),
• Implementing a fiscal stimulus (Indonesia).
• Small monetary policy steps, not much else (e.g.
  Kenya or Uganda).
• The institutional context differs. Some countries
  (e.g. Kenya, Ghana, Bangladesh, Nigeria) have
  established a global financial crisis task force.

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Social policy responses differ

• Social policy responses range from
• Reducing social sector allocations (Nigeria and
  Zambia) to
• Upgrading social protection from low base
  (Cambodia), to
• Expanding existing systems to need (Indonesia)
• The scale of the social protection response
  affected by
• Extent of revenue contraction,
• Ability of the government to access resources to
  finance the fiscal deficit, and
• Pre-existence of a social protection system.

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Conclusions

• The same transmission belts (trade, private
  finance, aid, remittances) affect country case
  studies differently
• Some countries affected considerably and stresses
  visible.
• Policy responses differ (capacity, fiscal space,
  willingness?)
• Hypothesis institutions matter (e.g.
  State-business relations and the ability to
  respond to a shock)

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Thank youdw.tevelde_at_odi.org.uk
Monitoring the global financial
crisis and policy implications in developing and
developed countries
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