Industrial nations need to open up their funding resources for developing countries to support their fiscal measures to mitigate the impact of the global financial turbulence, the World Bank said yesterday.
A recovery in the developing world is a "win-win for all" as it means stronger world demand that will in turn speed up recovery in the industrial states, World Bank said in a new study on the global crisis.
It said financial support is needed because nearly 90 per cent of the developing nations had been lightly or moderately affected by the crisis and three quarters of them lack the needed financial resources. The study also urged developing nations to support their private sector within overall reforms aimed at offsetting the effects of the crisis.
"A global slowdown in growth calls for a global fiscal stimulus. Those developing countries with strong fiscal and external positions should make use of the room for fiscal stimulus that they possess," it said.
"However, most developing countries faced with sharply declining growth and consequent major social disruptions lack the resources to mount any fiscal response, and will in fact experience a further erosion of their fiscal space as public revenues fall and external financing dries up."
The World Bank warned that without financial support, many of those countries could be forced to cut spending on infrastructure projects and social programmes, adding this could aggravate their conditions.
"Additional financing, on appropriate terms, would help them support growth and protect the poor and vulnerable from the impact of the crisis," the study said.
The bank said priority in funding must be given to developing nations with good macroeconomic management and institutional capacities to enhance what it termed as their fiscal space to respond to the crisis.
"Thanks to their efforts over the past decade to improve macroeconomic policies and governance, at least half of developing countries today have the macroeconomic conditions (taking into account fiscal and external sustainability considerations) and institutional capacities to underpin some fiscal expansion were financing on appropriate terms available."
It stressed that fiscal response in the developing world must be tailored to the specific circumstances of each countries, adding that they should also use available scope for domestic resource mobilisation.
"The crisis calls for an even sharper focusing of expenditures on core priorities – infrastructure for growth, key investments in human capital, and social safety nets. Investment projects for new spending must be carefully chosen to address key bottlenecks to growth and maximise development impact," the study said.
"Spending on social safety nets must be targeted to reach the intended beneficiaries – through programmes such as conditional cash transfers to poor households, workfare schemes, and maternal-child or school feeding programmes."
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