CAIRO: The World Bank Group disbursed a total of $80.6 billion during fiscal years 2009 and 2010 in response to the global economic crisis, according to a report released Thursday. The World Bank's Independent Evaluation Group (IEG) released a new assessment of its response to the global economic crisis, saying that it allocated more funds than any other international financial institution, including the International Monetary Fund. The assessment focused on the effects of the crisis on developing countries and the WB's response. According to the report, consensus emerged on the need for fiscal stimulus as a reaction, within budget constraints. Those with limited fiscal space had less room to respond and suffered more severe impacts. “The first signs of crisis in the developing world were sharp contractions in private capital flows and trade. From a peak of around $1,200 billion in 2007, net private capital flows to developing countries fell by over a third in 2008, as the liquidity squeeze in advanced economies led investors to pull back from emerging markets,” the report said. The WB responded to the crisis in waves. Its initial response narrowly focused on increasing lending, especially in Middle-Income Countries (MICs). As the scale of the demand became apparent, the bank rationed available capital from the International Bank for Reconstruction and Development (IBRD), and obtained board approval for an International Development Association Fast-Track Facility. The International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA) developed initiatives to leverage their impact and mobilize funds. The WB then set out linkages across programs. In March 2009, the group announced that it was “stepping up…financial assistance to help its member countries mitigate the impact of the crisis” to $100 billion for IBRD, $42 billion for IDA, and $36 billion for IFC. The financial assistance would fall under three operational crisis-response pillars: “protect the most vulnerable; maintain long-term infrastructure investment; and sustain the potential for private sector-led growth, with an over-arching focus on macroeconomic stability.” The report finds that the developing economies of the MENA region were “adversely affected by the crisis to varying degrees, largely depending on the composition of their exports and reliance on remittances and tourism.” Growth for the more diversified economies dropped by about 2 percentage points in 2009, from a strong 6.5 percent GDP growth in 2008 to 4.7 percent in 2009. The WB attributes this to the “virtual collapse of key export markets (notably the Euro area) inducing sharp declines in the merchandise exports of countries such as Egypt, Jordan, Morocco and Tunisia.” “At the same time, remittances and tourism revenues that support household consumption and job creation for these countries — declined by 5 percent,” the report adds. Infrastructure accounted for 29 percent of the overall increase in bank commitments ($16.4 billion), with much of it coming in the fourth quarter of fiscal 2010. The increase was due primarily to increased investment lending commitments of $4.0 billion for transport and $11.1 billion for energy, driven by large loans to developing countries including Egypt. However, the report points out that whether approved in fiscal year 2009 or 2010 the investments have disbursed very little, so any crisis-mitigating impact that might be derived from the associated bank supported investment program has been minimal. Potential vulnerabilities in the region outlined by the report include the sluggish recovery and weak demand for imports in Europe, and particularly the renewed risks emerging from the Greek debt crisis, together with vulnerable financial sectors and weak property markets in the region. The report finds that the year 2010 saw the MENA region “growing out of the crisis rather quickly.” The WB expects regional GDP to grow 4 percent in 2010 and 4.3 percent in 2011. According to the report, higher commodity prices and external demand are boosting production and exports in many economies in the region. In addition, government stimulus packages are playing a key role in enhancing the recovery. In its conclusion, the report explains that the crisis created an immediate need for countercyclical spending in developing countries, which the World Bank Group and others have supported. “To help sustain the recovery, contribute to longer-term growth, and improve the response capacity of the Group, attention needs to be given to two areas: policy change and organizational effectiveness,” the report said. “Policy issues concern fiscal sustainability, public-private synergies, financial sector reform, poverty and unemployment alleviation, and greener growth. In terms of organizational effectiveness, preparedness, managing quality trade-offs, coordination, and a strong results focus will be crucial.”
