Countries in a fragile state because of conflict or natural
disaster and which had no part in causing the financial
crisis are being hit by a slump in remittances and
foreign investment, the World Bank is warning.
Aid revenues and grants for fragile and conflict-affected
countries (FCC), most of which are low-income countries, shrank
by an average of 4% of GDP between 2007 and 2008.
Alastair McKechnie, director of the FCC Group at the Bank,
told Emerging Markets that remittances money
sent back by workers who have gone abroad for jobs could
contract by as much as 8% this year in sub-Saharan Africa,
which is home to most FCCs.
The FCC category includes Afghanistan, Timor-Leste, Sudan,
Somalia, Guinea and about 30 others countries. They account for
a sixth of the worlds population but a third of all
people surviving on less than $1 a day.
Many FCCs are heavily dependent on exports of commodities
such as oil, cocoa, cotton and metals, whose prices has fallen
substantially from pre-crisis levels although they have risen
over the summer.
In the absence of appropriate countervailing action,
the economic environment in many FCCs could further
deteriorate, with associated risks of collapse and conflict
relapses, McKechnie said.
The loss of remittances would undermine governments
tax revenues which in turn would make it harder for them to
meet rising unemployment bills and to pay for police and
security forces, which may in turn fuel instability, he
McKechnie said the World Bank may need to ask for more
donors. Axel van Trotsenburg, the Banks Vice President
for Concessional Finance, last week told Emerging
Markets that the bank may call for a short-term cash
injection later this year to help it assist low-income
countries hit by the crisis.
Potentially we may need to look outside [existing
resources] and we are in the process of thinking through this
and consulting with the donors on this, he said.
McKechnie said that the bank may need more resources
specifically for FCCs, which had been hit by the crisis much
later than middle- and low-income countries and had received
support from either the IMF or the bank.
A key message is to use the resources they have to
achieve the greatest impact on poverty and development,
Globally the bank estimates that the crisis will add 90
million people to the 2010 poverty headcount. In sub-Saharan
Africa and South Asia, the largest proportional increases in
poverty are expected hit the FCCs.
Cape Verdes finance minister, Cristina Duarte, told a
forum of small states on Sunday that remittances were a huge
issue for her country.Well concentrate on analysing
and discussing the role of remittanceshow can we better
manage remittances, which are an important capitals inflow for
She said that no single country could survive on its own,
and so far, she says, her small state was fighting with
success the international crisis.
McKechnie said the largest worry for FCCs was that now they
had been weakened by the financial crisis, they were more
vulnerable to the impacts of an unexpected natural disaster,
who would sap its already depleted resources.
Lower growth and higher unemployment rates, notably
among the youth, can have further destabilizing effects and
increase the risk of conflict relapses, he said.