Financing needs for the world's poorest countries, hit by the global crisis, will increase by $25 billion in 2009, possibly as much as $140 billion, the International Monetary Fund said on Tuesday. "The global financial crisis is expected to have a severe impact on growth and external stability in low-income countries," the IMF said in a new report that looks at the effects the spreading crisis will have on poor states.
It said if the global downturn worsens "the needs could be much larger, approaching $140 billion in a 'bad case' scenario." The IMF said it had identified 26 countries, many of them oil exporters, that are particularly vulnerable to the global downturn and collapse in commodity prices and which will require donor support.
It urged the international community, including donor nations, to step up their assistance in the face of a worsening crisis. At the same time, the IMF said it was concerned that aid could dive by as much as 30 percent this year relative to their 2008 value, as recession in advanced countries cuts into aid budgets.
"Potential declined in donor support and tighter financing conditions will likely impose further pressures on low-income countries' budgets," the IMF said. While the financial systems in poorer countries were not directly hit by the financial crisis, the IMF said some countries that had started to tap international markets had seen their access virtually come to an end.
The Fund said domestic banks may be hit by second-round effects as the economic downturn increases the number of borrowers unable to repay their loans. It said countries should focus on macroeconomic stability, and in countries with falling inflation there may be scope for monetary easing. Countries with flexible exchange rates should allow them to move so they act as shock absorbers, it added.
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