1 / 14

Overview

The Impact of Global Financial Crisis on LICs: Preliminary Assessment Hugh Bredenkamp Strategy, Policy, and Review Department International Monetary Fund December 2008. Overview.

gypsy
Download Presentation

Overview

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. The Impact of Global Financial Crisis on LICs:Preliminary Assessment Hugh BredenkampStrategy, Policy, and Review DepartmentInternational Monetary FundDecember 2008

  2. Overview • LICs are facing a “double blow”: already weakened from the past year’s high food and oil prices, they may be hit hard by the financial crisis and global slowdown • Transmission channels and vulnerabilities will vary across countries • Need for global stimulus, applied selectively • Case for scaling up aid even stronger than before

  3. Growth (8½%, on avg., in ’07) Inflation (6½%) Fiscal deficits (5¼%) Reserves (5¾ months of imports) Debt (30% of GDP) Background: A Decade of Progress For LICs, better policies, global growth, and debt relief had resulted in:

  4. Food and Fuel crisis  LICs weakened going into Financial Crisis

  5. Food and Fuel crisis  LICs weakenedgoing into Financial Crisis (cont’d) In September, 33 LICs were identified as vulnerable (with reserves falling below 3 months in 2008)

  6. Global growth to 3% Oil price to $68 Nonfuel commodity prices Food prices Recovery begins late 2009 Fall 2008: Severe Financial Crisis October 2008 WEO scenario for 2009….

  7. Immediate contagion has been limited: few linkages illiquid markets capital controls Reduced inflows into domestic markets Uganda, South Africa Parent banks restricting financing, capital withdrawal Kyrgyz Republic Effects on LICs: Direct Financial Channels

  8. Effects on LICs: Direct Financial Channels (cont’d) • Hardened terms on foreign borrowing • New issues postponed by Kenya, Ghana • Reduced availability of trade credit • Adverse effects on confidence • Stock markets down: Kenya, Mauritius, Nigeria, South Africa • Exchange rate pressures depreciation against USD: Kenya, Mauritius, South Africa, Uganda, Zambia

  9. Spillovers from Global Recession Global growth  LIC growth : 1 % global growth  0.3 % to 0.5 % in SSA growth Trade Slowdown in advanced and middle-income countries, plus contraction of trade credit  lower export volumes for LICs Reduced export prices for oil and commodity exporters

  10. Spillovers from Global Recession Remittances Workers remittances have grown rapidly …. Especially important in some countries: more than 25% of GDP for Lesotho; 12% for Cape Verde

  11. Spillovers from Global Recession But at least no stagflation…

  12. Fund Advice: Global • Stabilize financial markets • Continue liquidity support • Further capital injections • Global fiscal stimulus: • On the order of 2% of world GDP (growth ↑ 2%) • Onus is on countries with space to expand without jeopardizing medium-term sustainability • Monetary easing • Avoid beggar-thy-neighbor policies (especially protectionism)

  13. Fund Advice: LICs • LICs should leave stimulus task to larger economies • Some may have scope for countercyclical policy, depending on: • debt situation • availability of financing • Continue strengthening social safety nets • Restore inflation control • Allow exchange rates to adjust

  14. The Need for Support • New financing needs will vary widely but could be large (fin crisis+food/fuel+MDGs) • Vital that delivery of assistance is accelerated to avoid forced procyclical measures in LICs • IMF support: PRGF (incl. augmentations) and the Modified Exogenous Shock Facility (ESF): • Rapid Access component • Higher access • Fewer requirements

More Related