Slow Global Growth Affecting Low-Income Countries
World Economy

Slow Global Growth Affecting Low-Income Countries

Low-income developing countries have seen weakened external conditions over the past 18 months, but the net impact has varied significantly across these countries, according to a new study by the International Monetary Fund.
While all of the 60 IMF member countries classified as low income countries have been affected by slowing global growth, the key shock has been the dramatic drop in commodity prices over the past eighteen months. The report (Macroeconomic Developments and Prospects in Low-Income Developing Countries: 2015) says while commodity-dependent exporting countries (especially oil exporters) are being adversely affected, countries that are more diversified in their exports have benefited from lower prices and continue to record robust growth.
“While the global economic environment has weakened, especially in regard to commodity prices, the effects on low-income countries has varied with differences in country-specific exposures and domestic policy conditions,” said Sean Nolan, deputy director of the IMF’s Strategy, Policy, and Review Department who oversaw the production of the report.

Impact of Falling Prices
Hardest hit by low commodity prices are commodity exporters, particularly oil exporters, with growth, on average, set to decline from 5.7% in 2014 to 3% in 2015. By contrast, countries less dependent on commodities for export revenues, and that have benefited from lower fuel bills, for example, are expected to see growth as high as 6% in 2014-15.
The study shows a diverse picture when looking at the net impact of commodity price movements, even within country subgroups. While countries like Cambodia, Nicaragua, and Senegal have benefited, terms-of-trade losses are disproportionally high for some large oil exporters like Nigeria.

Rising Vulnerabilities
The report says economic vulnerabilities in low-income developing countries have increased steadily over the past two years, with some 40% of countries now deemed to be highly vulnerable to growth shocks, up from 25-30% in recent years and the highest level recorded since the global financial crisis.
Key drivers are the drop in commodity prices, which has led to weaker fiscal and external balances, along with the gradual erosion of policy buffers over time.
The report emphasizes the need for commodity exporters to adjust to what is expected to be an extended period of relatively low commodity prices and to strengthen fiscal and external positions over time. Where growth has been strong but vulnerabilities have been rising, early action to rebuild policy buffers is now needed.

Climate Change
The report lists climate change as an additional risk for low-income developing countries in the longer term. These countries are already more vulnerable to natural disasters than are countries at higher income levels. They are also projected to suffer more over time from the effects of global warming, given their geographic location (typically in already hot climates) and the large share of GDP accounted for by the weather-sensitive agricultural sector.
“Low income developing countries will need significant external financial support for national programs to adapt to climate change—otherwise, attaining ambitious development objectives will be very difficult over the longer term,” said Sean Nolan.

Capital Inflows
Capital inflows to low-income developing countries have increased sharply in recent years, the report says, especially portfolio inflows to frontier-market economies. These frontier markets have typically liberalized their capital accounts more quickly than other low-income countries, and many are now as open as emerging market economies.
Capital inflows have boosted domestic demand, with the use of external financing in consumption versus investment depending on national policy choices.
Pointing to the tightening of financing conditions, the report sounds a cautionary message on tapping portfolio inflows. “Countries that are increasing their reliance on access to external funding thus face an additional risk—shifts in the external environment—and need to place a high premium on maintaining solid economic fundamentals, including strong public debt management capacity,” the study says.

Short URL : https://goo.gl/Gy5KOC
  1. https://goo.gl/o8530q
  • https://goo.gl/ri2Jcl
  • https://goo.gl/ZCJupB
  • https://goo.gl/t0QKyE
  • https://goo.gl/kRz27Z

You can also read ...

Report says China’s economic development must rely on integration between innovation and industrial production,  and work must be done to ensure that innovation progress was passed on to production.
China's new economy will account for an estimated 12% of the...
The process of building a new government could take weeks, so markets may well move on from the result quickly.
Politics dominated trading on Monday, with the euro sliding as...
World countries are casting a shadow on the future of the global economic system.
Next month, when finance ministers and central bank governors...
TPP Nations Making Progress
The Trans-Pacific Partnership nations have made progress...
EU Seeks Protection for Uber-Style Jobs
The European Commission said on Monday it wants more social...
Japan PM Announces $17.8b Economic Stimulus Package
Japanese Prime Minister Shinzo Abe said he would seek to...
US to See Slower Growth
The pace of US economic growth will stay stuck in the low 2%...
The economy’s return to growth has eased pressure  on the authorities.
Now that Nigeria’s economy is recovering from its worst slump...