DAR ES SALAAM, (Reuters) – Developing countries could face a financing gap of $270-$700 billion — equivalent to the latest U.S. economic rescue package — to help deal with the effects of the global crisis, the World Bank said yesterday.
The World Bank said even at the lower end of that estimate, resources of international institutions would not be sufficient to meet the financing needs as more and more emerging and developing countries are hit.
“Should a more pessimistic outcome occur, unmet financing needs will be enormous,” the World Bank said in a paper prepared for meetings of the G20 group of countries in London in April.
The World Bank spends billions of dollars annually fighting poverty in developing countries.
Last week, the International Monetary Fund said developing countries would need $25 billion, and possibly as much as $140 billion, in 2009 to meet their financing needs.
The World Bank said the crisis threatened long-lasting repercussions for developing countries, struggling to find markets for goods as world trade volumes suffer their first annual decline since 1982, while remittances from overseas workers slow, and falling commodity prices provide less revenue for governments.
“The challenge facing developing countries is how, with fewer resources, to pursue policies that can protect or expand critical expenditures, including on social safety nets, human development and critical infrastructure,” the World Bank said.
Until recently, the impact the crisis would have on developing countries was unclear. But recent data has highlighted the potential scale of the damage, prompting institutions like the World Bank and IMF to raise alarm bells.
The worry is that many developing countries will not be able to afford fiscal stimulus packages of their own and will require aid from external sources.
More immediately, concerns are mounting as to how the rollover of maturing debt in emerging markets will be financed given the global credit crunch, especially for banks and large corporations, which will put financial pressure on governments who themselves are finding foreign capital hard to access.
The World Bank estimates well over $1 trillion in emerging market corporate debt and $2-3 trillion in total emerging market debt will mature in 2009, the majority of which reflects claims of major global banks extended cross-border or through affiliates and branches in emerging markets.
Most of this lending is in foreign currency, and for relatively short terms, meaning currency and maturity risks are primarily on the balance sheet of emerging market banks, corporate and households.
“There is mounting evidence of growing pressure on interbank lines, particularly those extended to the corporate sector. Recent evidence of rollover efforts on public debt of major corporates indeed suggests that even stronger corporates in key emerging markets are struggling,” the World Bank said.
It estimated that in 2009, 104 of 129 developing countries will have current account surpluses smaller than private debt coming due. For these countries, total financing needs were expected to amount to more than $1.4 trillion during the year.
