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The financial crisis - a human crisis too

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For India, which accounts for a third (over 450 million) of the world’s poor, the expected slowdown in economic growth means that 9–12 million people who would otherwise have escaped poverty will remain below the $1.25 a day poverty line.

LONDON, England, 19 February 2009 - The last decade has seen great strides forward for development, thanks to a combination of political leadership and sustained economic growth in a number of countries. This economic growth, together with commitments from donors to cancel debts and increase aid, has underpinned a far better quality of life for millions of our global neighbours. Yet some of the progress we have seen is at risk of being undone because of the economic downturn.

How will the poor be hit? The financial crisis will hurt us all, but it will hurt the world’s poorest the most. We estimate up to 90 million more people will be living in poverty by 2010.

The poorest are least able to protect themselves. Lower prices for their goods, job losses and less money sent home from family members abroad will leave poor people with less to spend on food. They’ll have to find ways to compensate, such as taking their children out of school. Mothers are likely to eat less themselves so they can feed their youngest – malnourished babies often end up with long term brain damage which hinders their ability to earn a living as adults.

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In Ethiopia DFID is providing social protection which sustains the livelihoods of over 7 million.

Longer term development prospects will also be affected. There will be less money for governments to meet their spending plans on health, education and infrastructure such as roads and power generation.

This is because there will be less demand and lower prices for exports, potential reductions in development aid and less money available for governments and businesses to borrow. As World Bank President Bob Zoellick has said: "this is not only a financial crisis; it’s a human crisis as well."

Emerging and developing markets The crisis has already hit many of the emerging markets. Bank lending and foreign investment have fallen, currency values have plummeted and demand for exports shrunk. This has had knock-on effects on output, incomes and employment.

Most poor countries are only now starting to experience the full impact of the crisis and the effects are expected to multiply over the coming months. Private financial flows to emerging and developing countries could fall by over 80%, from $1 trillion to around $165 billion. As world trade shrinks this year for the first time since 1982, developing country export growth could fall from 9% in 2007 to -1% this year and 5% next year. Remittances to developing countries – at around $280 billion a year – will stop growing and most likely decline. As these factors lower tax revenues and growth expectations fall, domestic business and consumer confidence is likely to decline, further affecting growth.

Each country has unique circumstances, so damage from the crisis will be uneven around the world. Nonetheless we estimate that each year after 2010 developing country incomes will be roughly 5% less

Response The World Bank and other multilateral development banks are already helping the poorest countries, but the international community needs to do much more. DFID is responding by allocating additional resources in Africa – including an additional £15 million for safety nets helping over 7 million people in Ethiopia; and working with partners to strengthen existing programmes in Asia – including guaranteeing a microfinance programme which will now reach 200,000 additional poor families in Pakistan. DFID will continue to work to help the poorest through the downturn.

Most importantly though, we are calling on, the international community to:

Set up a monitoring system so we can know which regions in which countries most need emergency help

Keep to the aid commitments that the developed world has made over the last few years.

Keep markets open and aid flowing to developing countries

Mobilise more lending from the multilateral development banks and from the sovereign wealth funds

Provide ways of helping those in real danger – for example through payments with which they can buy food and medicine


 

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