Transcript developing countries

The Global Economic Crisis
and Policy Responses
in West Asia
ESCWA,
Damascus, Syria
5 May 2009
Crisis Unexpected?
•
•
•
•
•
•
•
•
A crisis foretold
Unsustainable global imbalances
International financial architecture
Ideology: deregulation, self-regulation,
capital account liberalization
Financial Globalization: growth, stability?
Most developing countries innocent victims
Policy responses: inadequate; double standards
International cooperation: G7, G20, UN
Globalization: finance>trade
180
350
160
140
250
US$ Trillions
120
100
200
80
150
60
100
40
50
20
0
0
1980
1990
1995
2000
2006
Global financial assets
Global merchandise trade
)Global financial assets as a percentage of GDP (right axis
)Global merchandise trade as a percentage of GDP (right axis
3
As percent of GDP, indices 1980=100
300
Finance-investment nexus?
0.30
0.25
Gross Fixed Capital Formation
0.20
0.15
Gross Financial Investment Abroad
0.10
0.05
20
06
20
04
20
02
20
00
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
19
78
19
76
19
74
4
19
72
19
70
0.00
Financial globalization
• Net capital flows from South to North
(US largest borrower)
• Cost of funds not generally lower due to
financial deepening (more
intermediation, financial rents)
• Higher volatility
• Lower growth, higher instability
Short-term capital inflows
problematic
• No real contribution to investment,
growth rates
• Asset (shares, real estate) price + related
(e.g. construction) bubbles instead
• Cheaper finance for consumption binges
• Over-investment  excess capacity
• All exacerbate instability, pro-cyclicality
Contagion: crisis spreads
Financial sector contagion (incl. vicious circles):
Sub-prime crisis  financial crisis
 asset price deflation  liquidity/credit crunch
Financial crisis  Economic recession
(including feedback loops)
Real economy contagion (incl. vicious circles):
 Less investment, especially abroad (FDI)
 Less consumption
 Reduced demand for imports, i.e. for exports of others
 Prices, output declines globally
 Growth, employment declines globally
7
Middle East market indices
(Feb 2008-Feb 2009 change in per cent)
Abu Dhabi Securities
Market Amman Stock
Exchange Bahrain Stock
Exchange Beirut Stock
Exchange Doha Securities
Market Dubai Financial
Market Kuwait Stock
Market Muscat Securities
Market Palestine
Securities Exchange Saudi
Stock Market Composite*
-80
-70
-60
-50
-40
-30
Change in percent
-20
-10
0
Deflationary spiral
• Asset (stock, property) markets deflating
 negative wealth effect
 more bank insolvency
 generalized credit squeeze
• Lower external demand, world trade
 excess capacity
 investment slowdown
• Depressed domestic demand
 lower prices, output
 lower employment, incomes
Disorderly unwinding of
global imbalances
Billions of dollars
600
400
200
0
-200
-400
-600
-800
2005
US
Japan
2006
EU
2007
2008
Developing, excl China
2009
10
China
Globalization: Parallel fates
8
Developing
countries
6
World
4
2
Developed countries
0
-2
Preliminary,
revised forecast
-4
11
2003
2004
2005
2006
2007
2008
2009 (P)
7
Recession in most
developed economies
6.5
6.0
6
4.8
5
4.9
4
3
2.9 2.8
2.9
2.4
2.0
2
1.9
2.1
2.7
1.8
1.2
1.1
1
0.4
0.4
0
-1
-0.6
-2
-1.6
-1.9
United States
2005
Japan
2006
2007
EU-15
2008
New EU members
13
2009 orig. forecast
Slower growth in all
developing countries
9
8
7
6
5
4
3
2
1
0
-1
8.5
7.2
6.9
6.0
5.9
5.5
5.1
4.74.9
4.5
4.3
2.7
1.6
0.1
Developing
Africa
East and Western Asia
South Asia
-0.2
Latin
America
14
2005
2006
2007
2008
2009 forecast
Growth by main
country groups
Per capita GDP growth rate
World
Developed economies
USA
Japan
European Union
Economies in transition
Developing economies
Africa
North Africa
Sub-Saharan Africa
East and South Asia
East Asia
South Asia
West Asia
Latin America + Caribbean
LDCs
LDCs excl. Bangladesh
2004-07
2.6
2.1
1.6
2.1
2.4
7.7
5.7
3.4
3.6
3.6
7.3
7.8
6.5
3.7
4.0
5.2
5.4
2008
0.9
0.3
0.1
-0.6
0.7
5.5
4.0
2.5
3.6
2.2
5.0
5.3
4.9
2.6
2.7
3.6
3.4
2009
-3.4
-4.1
-4.4
-5.9
-3.4
-2.6
0.1
-1.0
1.4
-1.9
1.8
1.8
2.6
-1.2
-3.0
0.3
-0.6
Change in growth rate
2009/
2008
-4.3
-4.4
-4.6
-5.3
-4.1
-8.1
-3.9
-3.5
-2.3
-4.1
-3.2
-3.5
-2.4
-3.8
-5.8
-3.3
-3.9
2009/
2004-7
-6.0
-6.1
-6.0
-8.0
-5.8
-10.2
-5.6
-4.4
-2.2
-5.5
-5.5
-6.0
-3.9
-5.0
-7.0
-4.9
-6.0
Growth by main
country groups
World
Developed
economies
Economies in
transition
Developing
economies
West Asia
LDCs
Per capita GDP
growth rate
2004
-07 2008 2009
2.6
0.9 -3.4
Change in
growth rate
2009/ 2009/
2008 2004-7
-4.3
-6.0
2.1
0.3
-4.1
-4.4
-6.1
7.7
5.5
-2.6
-8.1
-10.2
5.7
3.7
5.2
4.0
2.6
3.6
0.1
-1.2
0.3
-3.9
-3.8
-3.3
-5.6
-5.0
-4.9
Real growth and consumer
inflation, 2005-2009
Country/Group
Bahrain
Kuwait
Oman
Qatar
Saudi Arabia
United Arab Emirates
GCC countries
Egypt
Iraq
Jordan
Lebanon
Occupied Palestine
Sudan
Syrian Arab Republic
Yemen
More Diversified Economies
ESCWA region
Real Growth
2008
2009
6.3
2.0
6.1
0.7
6.0
1.5
16.0
7.0
4.2
0.7
7.4
0.5
5.8
1.1
6.5
4.5
8.9
5.0
6.0
3.6
5.5
3.0
-1.7
-1.0
8.5
4.2
6.5
3.2
4.5
2.0
6.6
4.0
6.1
2.1
Consumer inflation
2008
2009
3.5
3.5
10.4
5.7
12.4
6.0
15.0
11.2
9.9
4.5
18.6
5.2
12.0
5.2
17.1
9.7
2.7
5.0
14.0
6.5
11.7
5.7
9.8
5.2
15.0
11.0
14.7
6.0
19.0
12.7
13.9
8.2
12.7
6.3
Regional GDP growth rates
in PPP terms, 2007-2010
 2007
World
Advanced
Economies
 2008
European
Union
 2009
Emerging
&
Developing
Economies
 2010
SubSaharan
Africa
Central &
Eastern
Europe
Middle East
Note: The IMF World Economic Outlook classification of the Middle East region includes Egypt, Iran, and Libya.
Source: IMF, World Economic Outlook Update, January, 2009.
Real GDP growth in
Arab States, 2007-2010
Unemployment rates in the
Middle East (% of labour force)
Unemployment rate in per cent
▲ Total
N
18
16
14
12
10
8
6
4
♦
Males
 Females
Females
Males
Total
Females
Males
Middle East
.
Total
Unemployment
scenarios for 2009
WA: Limited impact so far
• Most of region’s financial markets have
declined significantly
• So far, impact on real economy
relatively limited due to:
- mass surplus liquidity (GCC countries)
from oil boom
- relative insulation
- low market capitalization
But worse yet to come
• But crisis going to hit more forcefully
• Real GDP growth projected to drop
to 4% in 2009 (6% in 2007)
• Unemployment rates to climb
from 9.4% to 10.8%
Past growth problems
• Regional economic growth spurred by:
- oil revenue
- real estate investment
- housing
- tourism
- foreign assistance
--- rather than productive activity
• Surpluses not used to build up strong
industry, infrastructure, skills
Jan-09
Dec-08
Nov-08
Oct-08
Sep-08
Aug-08
Jul-08
Jun-08
May-08
Apr-08
Mar-08
Feb-08
Jan-08
Monthly Crude Oil
Prices ($/barrel)
Food prices will
remain higher
350
300
250
200
150
100
50
2000
2001
2002
2003
2004
Wheat
2005
2006
Maize
2007
2008
2009
Rice
2010
2011
World trade collapsing
Annual percentage growth
15
11.2
9.3
10
7.4
4.4
5
5.6
6.4
2.0
0
-0.8
-5
-10
-15
Preliminary, revised
UN forecast
-10.0
33
2001 2002 2003 2004 2005 2006 2007 2008 2009
Collapsing world trade
(volume index, 1998 = 100)
280
Developing and other non-OECD
country exports
260
240
220
World trade
200
180
160
OECD country exports
140
120
20
06
M
20 1
06
M
20 3
06
M
20 5
06
M
20 7
06
M
00 9
6M
20 11
07
M
20 1
07
M
20 3
07
M
20 5
07
M
20 7
07
M
00 9
7M
20 11
08
M
20 1
08
M
20 3
08
M
20 5
08
M
20 7
08
M
00 9
8M
20 11
09
M
1
100
Source: CPB
ME current account
Middle East and North Africa
US $ billions
1400
1200
1000
800
600
400
200
0
-200
Exports
Current account balance
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
ME oil exporters too
Middle East and North Africa: Oil Exporters
US$ billions
1200
1000
800
600
400
Exports
Current account balance
200
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Volatile aid flows
8%
LDCs
7%
6%
5%
4%
Sub-Saharan Africa
3%
2%
Other LICs
1%
0%
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Official aid (USD$/capita)
Iraq (2003)
.
Jordan
(2006)
Lebanon
(2006)
Syria (2006)
Yemen
(2006)
Egypt (2006)
Remittances to developing
countries, 2008-2010
(billions of US dollars)
300
2008
250
2009
200
2010
260
239
238
150
100
50
45
41
42
0
Low-income countries
Middle-income countries
Total remittances as %
of national GDP
Jordan (2007)
Lebanon
(2007)
Oman (2006)
Syria (2007)
oPt (2007)
Yemen (2007)
Remittances from
Saudi Arabia, 2005
Remittances from Saudi Arabia
as % of GDP of receiving
Arab country, 2005
9%
Percentage of GDP
8%
7%
6%
5%
4%
3%
2%
1%
0%
Impact of crisis on
extreme poverty
Change in extreme poverty (< $1.25/day)
No. of Poor
Change in poverty
Transition economies
Developing economies
Africa
North Africa
Sub-Saharan Africa
East and South Asia
East Asia
South Asia
West Asia
LAC
’09/‘04-’07
’09/‘08
’09/‘04-’07
’09/‘08
0.6
0.6
0.3%
0.3%
111.1
5.9
0.1
5.8
101.0
16.2
84.2
0.6
73.5
4.2
0.1
4.1
65.6
27.5
37.8
0.2
1.8%
1.2%
0.1%
1.6%
2.0%
0.8%
3.0%
0.5%
1.2%
0.9%
0.1%
1.1%
1.3%
1.3%
1.3%
0.2%
4.1
3.7
0.7%
0.7%
Livelihoods threatened
• Declining living standards, increasing inequality
of concern for some time
• Many livelihoods under threat, especially when
social protection not well-developed
• Migrant workers > 60% in most GCC
countries
• Prolonged slowdown in world economy likely
to cause remittances, job creation, tourism
and ODA to decline, unemployment to
increase, particularly among youth
Policy priorities
• Promote growth of productive
sector
• Encourage pro-poor growth
• Strengthen social protection
• Oppose discrimination
• Emphasize human development,
decent work
Trade impacts: summary
• Exports decline 
all developing countries
• Terms of trade  primary exporters
• Trade surpluses,
reserves may run down quickly
• But lower energy, food prices help
net food and oil-importers
46
Financial impacts on
developing countries
• Despite non-involvement in sub-prime debacle:
 Emerging stock markets collapse greater
 Reversal of capital flows, FDI also down
 Spreads rise, much higher borrowing costs
• But financial positions stronger than during
Asian + LA crises (more foreign reserves,
better fiscal balances)
But reserves rapidly evaporating with export
collapse; fiscal space also disappearing
47
Social, political impacts
• >200 m. more working poor
• ILO: Unemployment to rise by 51m
• Government social spending at risk
• Rising social unrest
• US intelligence report:
crisis -- greatest security risk
New Bretton Woods
moment?
Bretton Woods, 1944: United Nations conference
on monetary and financial affairs
• 15 years after 1929 Depression
• Middle of WW2
• US initiative vs UK Treasury stance
• 44 countries (28 developing countries; 19 LA)
• IMF, IBRD, ITO – UN system
• Clear emphasis on sustaining growth, employment
creation, development,
not just financial stability
• But BWIs very different governance arrangements
Responses to crisis
• UN, BIS forecasts more accurate than others;
IMF, WB upbeat till late 2008
• IMF, WB also marginalized by G7, etc
• IMF discouraging strong fiscal stimulus by
developing countries without surplus
• G7  G20: more inclusive? legitimate? crisis-,
but not developmental or equitable
• PGA (Stiglitz) Commission of Experts
• Doha Declaration: June 09 summit on impact
of crisis on developing countries
UN role?
Universal, legitimate  lead reform process?
Ensure comprehensive systemic reform
Ensure developmental financial system
Ensure inclusive financial system
Develop capacity for offering 2nd opinion
to interested member states
• Align IMF, WB with UNDA (including
FfD), IADGs to ensure policy coherence
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•
Thank you
Please visit UN-DESA www.un.org
G24 www.g24.org and PGA
www.un.org/ga/president/63/ websites
• Research papers
• Policy briefs
• Other documents
Acknowledgements: UN-DESA, ILO, ESCWA
57