The world's poorest countries will receive a $238bn (£152bn) hit from
Europe's
sovereign debt crisis as the knock-on effects from weak growth and
austerity in the single currency zone affect trade, aid, investment and
remittances, one of the UK's development institutes said.
A study
by the Overseas Development Institute showed export-dependent emerging
nations were vulnerable to a prolonged downturn in Europe triggered by
fears of a break-up of monetary union.
Research found weaker
demand in Europe for imports from low and low-to-middle income countries
would have a marked impact on growth. In what it called a "bombshell"
for poor nations, the ODI said the cumulative output loss in 2012 and
2013 would amount to $238bn.
The
European Union
is the biggest economic unit in the global economy and is the largest
export market for countries in the developing world. The ODI said a 1%
drop in global export demand could hit growth in poor countries by up to
0.5%, with
Mozambique,
Kenya,
Niger,
Cameroon,
Cape Verde and
Paraguay most at risk from the
eurozone crisis.
Many developing countries, including the world's poorest region, Sub-Saharan
Africa,
have enjoyed growth in recent years, partly due to the strong demand
for their raw material and commodities from China and other fast-growing
nations.
Author Isabella Massa said: "There are three broad ways
in which the eurozone crisis will affect developing countries – through
financial contagion, as a knock-on effect of fiscal consolidation in
Europe to meet austerity needs, and through a drop in the value of
currencies pegged to the
euro."
The
ODI report says, Côte d'Ivoire relies on exports to the EU for over 17%
of its GDP, while in Mozambique and Nigeria the figure was about 14%
and 10% respectively. Tajikistan was most dependent on remittances in
2010, with up to 40% of GDP coming from citizens abroad.
Liberia
and Democratic Republic of the Congo were dependent on foreign direct
investment in 2010, with inward FDI as a share of GDP equal to over 25%
and 20% respectively. Niger followed with a value of inward FDI as a
share of GDP equal to 17%.
Robert Zoellick, outgoing president of the
World Bank,
warned developing countries that they needed to prepare for a renewed
wave of global financial turbulence stemming from Europe, and said they
should put their finances in order so they had scope to ease policy.
The Bank has already pencilled in an easing of growth rates in the developing world this year to 5.3%.
Massa
said: "Poor countries are vulnerable to the euro crisis not only
because of their exposure (due to dependence on trade flows,
remittances, private capital flows and aid) but also because of their
weaker resilience compared to 2007, before the onset of the global
financial crisis.
"The
ability of developing countries to respond to the shock waves emanating
from the euro area crisis is likely to be constrained if international
finance dries up and global conditions deteriorate sharply."
In
order to weather the crisis, the ODI advised developing countries should
continue to focus on the goals of solid public finances and economic
stability as long-term goals, but should also "spur aggregate domestic
demand, promote export diversification in both markets and products,
improve financial regulation, endorse long-term growth policies, and
strengthen social safety nets.
"For their part, multilateral
institutions should ensure that adequate funds and shock facilities are
put in place in a coordinated way to provide effective and timely
assistance to crisis-affected countries."
The ODI report said that
the ability of developing countries to respond to the shock waves
emanating from the euro area crisis was likely to be constrained if
flows of international finance dried up and if the global economy took
another turn for the worse.
"The escalation of the euro crisis and
the fact that growth rates in emerging BRIC (Brazil, Russia, India and
China) economies, which have been the engine of the global recovery
after the 2008–9 financial crisis, are now slowing down make the current
situation really worrying for developing countries."
http://www.guardian.co.uk/business/2012/jun/21/eurozone-crisis-cost-poor-countries
