Chandan Sapkota’s Blog

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Chandan Sapkota’s Blog

700 billion (that’s a pretty wide range!) due to the financial crisis, according to a new survey by the WB. It argues that developing countries will probably face higher spreads and lower capital moves than over the past seven years, leading to weaker investment and slower development. The low-income countries are feeling the brunt of gasoline and food turmoil still, which depleted international reserves. Then your ensuing global financial crisis led to reducing of commodity prices, especially main goods- the main export components of LICs, resulting in lowering of terms of trade.

This is probable going to increase deficit. All the problems occurring at the same time or in sequence will put enormous pressure on fiscal stability. One of the main worries for the developing countries is the decline in remittances, the lifeblood of small economies like Nepal which has more than a million citizens working abroad. Remittances donate to approx 20% of GDP.

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Surprisingly, remittances inflows have been increasing until in Nepal recently. No one knows how long it shall last until the crisis cripples remittances inflow. But, it soon is expected to drop. The paper said that 94 out of 116 developing countries have experienced a slowdown in financial growth. Of these national countries, 43 have high levels of poverty.

The most affected sectors are those that were the most powerful, urban-based exporters typically, construction, mining, and production. Cambodia, for example, has lost 30,000 careers in the garment industry, its only significant export industry. More 500,000 careers have been lost in the last 90 days of 2008 in India, including in gems and jewelry, textiles and autos.

The ILO predicts that global job losses could hit just as much as 51 million people and influence 30 million workers. The WB says that financial crisis shall have long-term implications for developing countries. To be able to aid stimulation of developing economies, the WB has launched an Infrastructure Recovery and Assets (INFRA) program (among other programs), which, it says, will channel investment in infrastructure so that badly needed investment is not completely dry.

15 billion) in the developing countries. What’s amazing is that the complete discussion for investment on infrastructure to induce the economy began with American Recovery and Reinvestment Act, launched by the National government. A lot of the development organizations have been arguing for similar stimulus in the developing countries. What I don’t understand is that why were these development organizations waiting for this disaster (and for so long) to route in investment on infrastructure projects in the developing countries? For decades it was known that there is a deficient way to obtain infrastructure in the developing countries. Still, there was no such aggressiveness in enhancing on this front by providing aid and expertise to the developing countries.

For example, the most binding constraint on growth in the Nepali overall economy is bad infrastructure. You don’t need a sophisticated analysis to realize that it is the most binding constraint on growth (actually, It was tried by me myself in a recently available paper!). People know that there surely is lacking supply of markets and infrastructure and creation sites are not connected. Still, the development agencies didn’t invest with this crucial sector that would have produced the biggest bang for a buck. All of a sudden, there is a renewed vigor to put in an investment on infrastructure sector in the developing countries. Everyone desires to ‘follow the herd’.

Nothing incorrect with this effort but I think it is too past due and too little to activate developing economies by focusing investment in infrastructure only. Anyway, here are addition dialogue about the impact of financial crisis on the poorest countries. Duncan Green here talks about this problem. Here is Shanta Devarajan’s views on if Africa requires a fiscal stimulus, largely dependent on foreign aid (he says, it depends). This is a post based on UNU’s paper on the impact of financial crisis on the developing countries. And, here is a post about the necessity for social security protection nets like CCTs in this financial crisis.

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