Supplementary memorandum submitted by
the Department for International Development
12 November 2008
At the IDC oral evidence session on the 30 October,
you requested analysis on the impact of the financial crisis on
countries where my Department has particularly large programmes.
We have undertaken a preliminary analysis of the vulnerability
of our Public Service Agreement (PSA) countries, most of which
are low-income countries, focused on the impact of both the immediate
financial crisis and the global slowdown.
Some emerging economies are directly impacted
by the global economic downturn and have had to seek support to
avert a financial crisis. Low income countries and most of the
PSA countries have suffered less direct impact, but are experiencing
a drying up of short term and trade credits, which curtail trade
and raise production costs. To date, Pakistan is the only PSA
country that has had to go to the IMF for emergency support.
I am also concerned about the impact of the
recession in Europe and the US on poverty reduction and growth
in our PSA countries. The IMF has revised down its growth projections
for low income countries. Sub Saharan Africa is now expected to
grow by 5.5% and 5.1% in 2008 and 2009 respectively, compared
to projections of 6.1% and 6.3% for 2008 and 2009 made in its
October World Economic Outlook. Similarly, Developing Asia is
expected to grow at 8.3% and 7.1% in 2008 and 2009 respectively,
compared to earlier projections of 8.4% and 7.7% for 2008 and
2009.
We expect slower world growth to hit hardest
the PSA countries that are heavily dependent on world markets
for capital or export sales. But, where policies are sound, we
do not expect the consequences to be massive. However, where reserves
are low, fiscal and foreign balances weak and debt high, the dangers
are significant. A particular threat is inflation with 17 out
of 24 PSA countries having inflation rates of over 10% in the
last year. Preliminary analysis has identified several PSA countries
vulnerable in several of the above dimensions—for example,
Ethiopia, Rwanda and Cambodia.
Governments will need to adjust fiscal and monetary
policies to minimise the impact on growth and protect the poorest,
for example through safety nets and access by the poor to credit.
Maintaining a competitive exchange rate is important for countries
suffering from a negative shock to their export markets. But closing
their own markets will not be helpful.
Our bi-lateral programmes will help PSA countries
make adjustments needed, while protecting the poor and keeping
up budget expenditures on health and education. My department
is prepared to consider reallocations or increases in country
level aid budgets to help, if this is needed. In Malawi we are
already proposing to bring forward £5 million in budget support
so the government can continue pro-poor spending.
However, the main response to the crisis needs
to be multilateral. We will strongly support the IMF and World
Bank in financial stabilisation and emergency lending. We will
also maintain our ODA commitments and respond to partner governments
who need to re-prioritise the use of aid resources. Other donors
should be pressed to do the same.
I also undertook to provide information on our
evolving ideas for a Global Partnership for Agriculture and Food
(GPAF), specifically with regard to how many countries might participate,
and when the international community might achieve its ambition
of doubling agricultural productivity in Africa. Ultimately there
should be no limit to the number of developing countries who might
sign up to the GPAF. But realistically, given that it will take
a little time for consultations to conclude in relation to the
development of agreed national strategies in agriculture and food
security, we envisage perhaps 20 developing countries joining
in the first raft by the end of 2009. Thereafter, countries will
join as and when national strategies are agreed.
On target dates for doubling agricultural productivity
in Africa, or for doubling the rate of agricultural growth in
Asia, I am keen to see clear and monitorable targets set for each
country at the time it joins so that those making commitments
to achieve these targets (both donors and developing country governments)
can be held to account. To be worthwhile such targets need to
be ambitious, and in the appropriate circumstances I see no reason
why these targets should not be set at 2015, or as soon as possible
thereafter.
Douglas Alexander
| 
