World Bank report: Challenges loom for developing nations

By ANA

Johannesburg – The World Bank has warned that developing countries, “an engine of global growth following the financial crisis”, could expect a more bumpy ride in the year ahead.

The Bank’s latest Global Economic Prospects report released this week predicted that growth in Sub-Saharan Africa would slow to 4.2%, mainly reflecting a reassessment of prospects in Nigeria and Angola following the sharp drop in oil prices, and in South Africa because of ongoing difficulties in electricity supply.

Kaushik Basu, the Bank’s chief economist and senior vice president, likened the impending rise in US interest rates to a big shadow on the economic landscape. He said that what the report called the “expected US lift-off” would dampen capital flows and raise borrowing costs.

This, he said, would add to challenges in commodity-exporting emerging markets that are already struggling to adjust to persistently low commodity prices, or for countries experiencing policy uncertainty.

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Developing countries were now projected to grow by 4.4% this year, with a likely rise to 5.2% in 2016, and 5.4% in 2017.

By contrast, the report said, the recovery in high-income countries was gaining momentum as growth in the euro area and Japan picked up and the US continued to expand despite a weak start to the year.

WATCH: Ayhan Kose, director of development prospects at the World Bank, on the tough challenges ahead for developing nations in 2015:

Low oil prices have considerably reduced growth in commodity-exporting countries and have also slowed activity in non-oil sectors. Although South Africa was expected to be one of the main beneficiaries of low oil prices, growth is being held back by energy shortages and weak investor confidence amid policy uncertainty.

In the Middle East and North African region, growth is expected to remain flat at 2.2% in 2015. The plunge in oil prices is a particular challenge for oil-exporting countries, many of which also have severe security challenges.

A special analysis in the report highlighted the possibility that persistently low commodity prices would persuade policymakers to steer resources away from metals and minerals and into other national economic priorities that will drive growth instead.

Courtesy of World Bank Global Economic Prospects report, June 2015

World Bank Group President Jim Yong Kim said countries that invested in education and health, as well as improved the business environment and created jobs by upgrading infrastructure had the best chance of weathering the storm. “These kinds of investments will help hundreds of millions of people lift themselves out of poverty,” he said.

“After four years of disappointing performance, growth in developing countries is still struggling to gain momentum,” said Franziska Ohnsorge, lead author of the report. “Despite auspicious financing conditions, a protracted slowdown has been underway in many developing countries, driven by shortages in agriculture, power, transport, infrastructure, and other vital economic services. This makes the case for structural reforms all the more urgent.”

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