Regional impact of the global financial crisis: Poverty and food security

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Regional impact of the global financial crisis
Poverty and food security

• Ben Slay
• Senior economist
• UNDP Bureau for Europe and CIS
• 5 December 2008

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Presentation topics

• Impact of global financial crisis on
• Economic growth
• Poverty reduction
• Rural poverty, food security
• Implications for development environment
• United Nations
• Bretton Woods institutions

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Regional growth trends Drama in three acts
Unweighted average annual GDP growth rates,
national data
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Growth Good for poverty reduction

• World Bank data show that, between 1998-99 and
  2005-06
• Those living in poverty fell by 50 million
• Those vulnerable to falling into income poverty
  fell by 48 million
• Less than one in eight now live in absolute
  poverty

Source Alam, Sulla, Yemtsov, Income Poverty in
ECA An Update, World Bank, 4 April 2008
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Poverty rose during, after 1997-1998 financial
crises
Absolute income poverty, measured against
PPP2.15/day threshold. World Bank data.
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Poverty rates Higher in rural areas
World Bank data, based on PPP2.15/day threshold,
from 2002-2003
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. . . IMF sees recessions, growth slowdowns
Annual GDP growth, IMF data, forecasts. Sources
IMF World Economic Outlook, October 2008 other
IMF publications
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Contagion Four key transmission mechanisms

• Trade shocks
• Prices (terms of trade effects)
• Quantities (falling export demand)
• Financing gaps will be harder to fill
• Inter- , intra-bank inflows may reverse
• Falling remittances

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Terms of trade shock Exports prices collapsing
Spot oil prices have dropped two thirds since
mid-2008
Lower food, oil prices will help most SEE, new EU
countriesbut not many CIS countries
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Financing gap Needs that cant be met by
borrowing

• Two key forms
• Large current account deficits
• Large external repayments
• Or both
• Big problem now, when capital markets are closed
  to most developing, transition economies

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Current account balances
No refinancing issues
Significant refinancing issues could be present.
Much depends on FDI, concessional finance (IMF)
Significant refinancing issues are present
Shares of 2007 GDP, EIU data.
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External debt Repayment without refinancing??
In billions. Sources JPMorgan, EIU
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Remittances Whos most at risk?
Remittances as of GDP. Source World Bank
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Remittances from Russia Up sharply in 2008 first
half . . .
Wages and transfers paid out to other CIS
countries, in millions, first-half data. Source
Central Bank of Russia.
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. . . But not from Kazakhstan
Wages and transfers paid out to other CIS
countries, in millions, first-half data. Sources
National Bank of Kazakhstan, UNDP estimates.
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Inflation Up sharply in 2007-2008

• Driven by higher food, energy prices
• Can increase poverty even without causing a
  recession
• Poorer households nominal wages, social benefits
  may not keep up with inflation
• Governments, central banks may have to
• Tighten fiscal, monetary policies
• Devalue exchange rates

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Accelerating inflationary pressures . . .
Consumer price inflation. 2008 data are for
January-September. Sources CIS Statistical
Office, EIU.
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. . . Aggravate food insecurity . . .

• Tajikistan 2.2 million food insecure
• 34 of rural population
• 37 of urban population
• 800,000 severely food insecure, requiring
  immediate support
• Kyrgyzstan Nearly 1 million vulnerable
• Sources
• Tajikistan WFP, FAO, UNICEF Joint Food Security
  Assessment (May, July 2008)
• Kyrgyzstan UN Winter Preparedness Response Plan
  (October 2008)

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. . . As drought worsens Central Asias prospects

• Tajikistan is particularly vulnerable
• Global food prices may now be falling . . .
• . . . But they are still high in Central Asia
• What happens if the drought continues?
• Low reservoir water levels today can affect
  irrigated agriculture in future

USDA forecasts for 2008-09 wheat crops, over
2007-2008. Source http//www.pecad.fas.usda.gov
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Food prices may be falling globally . . .
Source http//www.fao.org/worldfoodsituation/Food
PricesIndex/en/
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. . . But not in Tajikistan
(Data from UNDP-Tajikistan)
Source UNDP-Tajikistan
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Whither ODA flows?

• Bad news
• OECD-DAC ODA falling before global financial
  crisis hits
• Further reductions in 2009-2010?
• Good news
• 2005-2007 decline due to less debt relief
• Decline partly offset by growing ODA flows from
  non-DAC donors

Annual OECD-DAC ODA flows, in billions. Source
OECD-DAC
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Possible changes in donor landscape

• Role of OECD-DAC donors will decline
• Role of new donors, south-south cooperation
  will increase
• Whither the Paris Declaration?
• Conditionality principles will weaken, role of
  national ownership strengthen
• But
• Donor space will fragment further
• Donor coordination will become more difficult

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Search for new development paradigms

• Global financial crisis is discrediting
  neo-liberalism, Washington consensus
• But whats the alternative?
• Especially for developing countries without large
  foreign exchange reserves?
• Globalisation hasnt gone away
• Changes in state/market relations in OECD
  countries may not easily transfer
• Bank nationalisation in US, Europe doesnt change
  need for private sector investment in developing
  countries

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What happens to Bretton Woods institutions?

• Two key, related questions
• Riding to the rescue . . . or to irrelevance?
• Who will pay for an expanded role?
• Especially important for IMF

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BWIs Emerging institutional imbalances

• Demand side Possible new global roles
• Lender of last resort?
• Overseer of financial reregulation?
• Supply side Business models under attack as MICs
  proliferate
• Capital markets were making BWIs irrelevant
• Will MIC capital market access weaken?
• Who will provide capital infusions for BWIs?
• Will China, Gulf states invest in
• Bretton Woods institutions (multilateralism) . .
  .
• . . . Or sovereign wealth funds (bilateralism)?

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Thank you very much!