Post on 06-Mar-2018
The global financial crisis and
developing countries
synthesis of 10 country study
Dr Dirk Willem te Velde
Overseas Development Institute
ODI meeting:
The global financial crisis and developing Asia
14 July 2009, London
Outline
The global financial crisis has also hit developing
countries; regional effects
Transmission belts and examples from a 10 country case
study
Effects on development and policy responses
2
3
Revisions in GDP per capita
forecasts for 2009 (IMF)
Serious effects in all regions, but different effects in different countries.
Jul 2008
Jul 2008
Jul 2008
Oct 2008
Oct 2008
Oct 2008
Nov 2009
Nov 2009
Nov 2009
Jan 2009
Jan 2009
Jan 2009
-3
-2
-1
0
1
2
3
4
5
6
Developing countries Africa World
Jul 2008 Oct 2008 Nov 2009 Jan 2009 April 2009 July 2009
4
Revisions in GDP forecasts for
2009 (IMF) in Developing Asia
Note: India/China vs other Developing Asia in the most recent forecast
BRICs doing better than small/low income ?
-2
0
2
4
6
8
10
12
Asia China India ASEAN-5
Jul 2009
Oct 2009
Nov 2009
Jan 2009
April 2009
July 2009
5
The global financial crisis and 10
developing countries
6
ODI used its network of researchers
ODI contributors:
Dirk Willem te Velde, Massimiliano Calì , Jodie Keane, Jane Kennan,
Isabella Massa, Anna McCord, Mareike Meyn, Milo Vandemoortele
Country case study contributors:• Luis Carlo Jemio and Osvaldo Nina, Grupo Integral S.R.L, INESAD, Bolivia
• Olu Ajakaiye, African Economic Research Consortium, Oluwatayo Oni Fakiyesi, University of Lagos,
Nigeria
• Hossein Jalilian, Chan Sophal, Glenda Reyes, Saing Chan Hang, Phann Dalis and Pon Dorina, Cambodian
Development Policy Research Institute, Cambodia
• Mustafizur Rahman, Debapriya Bhattacharya, Md. Ashiq Iqbal, Towfiqul Islam Khan, Tapas Kumar Paul,
Centre for Policy Dialogue, Bangladesh
• Sarah Ssewanyana, Lawrence Bategeka, Evarist Twimukye, Winnie Nabiddo Economic Policy Research
Centre, Uganda
• Amoussouga Gero Fulbert, Professor, Université d'Abomey-Calavi, Benin
• Manenga Ndulo, Dale Mudenda, Lutangu Ingombe, and Lillian Muchimba, Department of Economics,
University of Zambia
• Francis Mwega, Department of Economics, University of Nairobi, Kenya
• Ira Setiati Titiheruw, Hadi Soesastro and Raymond Atje, Centre for Strategic and International Studies,
Indonesia
• Charles Ackah, Ernest Aryeetey, Ellen B-D. Aryeetey, Institute of Statistical, Social and Economic
Research (ISSER), University of Ghana
7
ODI’s monitoring methodology
Global shock
Unprecedented in decades
National shock
(Same transmission belts, different effects:
Private capital flows, trade, remittances, aid)
Macro – effects
(differs: growth, development and fiscal space )
Policy responses
(range from pro-active to “business as usual”)
Short-term (economic and social), long-run (economic)
8
What affects the vulnerability of
countries?
FINANCIAL Countries with sophisticated, weakly regulated banking sectors / stock markets;
Countries with a high share of foreign-owned banks and foreign assets;
Countries dependent on external private capital flows (e.g. FDI, portfolio);
REALCountries with a significant share of exports to crisis-hit advanced economies; Economies with concentrated exports in a few commodities
Countries exporting commodities whose prices have dropped or products and services with high income elasticity of demand (eg tourism);
Countries heavily dependent on remittances
Countries dependent on aid.
9
Who is likely to be less resilient?
“INSURANCE”
Countries with a high current account deficit with pressures on exchange
rates and inflation rates,
Countries with low reserves;
Countries with high government deficits and weak fiscal balances;
Countries with high external debts;
“COPING”
Countries with weak policy implementation capacity and weak institutions
(e.g. state business relations);
Countries lacking social protection nets.
10
Transmission belt (1)
Private financial flows
Stock market declines everywhere (30-50% since start GFC)
Portfolio investment flows badly affected in late 2008
FDI has been more resilient; but plans put on hold
Ghana, Benin and to some extent Zambia have experienced
decreases in both FDI and portfolio investment inflows.
Bond issuances put on hold in Ghana, Kenya, Uganda
There is little evidence so far of a drop in banks‟ international
claims, but some countries are vulnerable
11
Transmission belt (1)Portfolio flows and stock markets
Indonesia:
Stock exchange index, 2007-2009
Source: Uganda Country Case Study
Indonesia:
FDI and portfolio investment, 2007 and
2008 (US$m)
Source: Indonesia Country Case Study
-5000
-4000
-3000
-2000
-1000
0
1000
2000
3000
4000
5000
Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08
In U
SD
millio
ns
Foreign Direct Investment Portfolio Investment
1000
1200
1400
1600
1800
2000
2200
2400
2600
2800
3000
1/2
/2007
3/2
/2007
5/2
/2007
7/2
/2007
9/2
/2007
11/2
/2007
1/2
/2008
3/2
/2008
5/2
/2008
7/2
/2008
9/2
/2008
11/2
/2008
1/2
/2009
3/2
/2009
IHS
G
Worsening US
Subprime M ortgage
Crisis, Aug 16 '07
Global Stock M arket
Crash, Oct 10 '08
Less so and later in Bangladesh (but more in Africa)
12
Transmission belt (2)
Trade – different shocks
Open countries (Cambodia, Ghana, Uganda, Zambia) and
more protected countries (Bangladesh, Nigeria).
Different types of export shocks
Commodity price shock affecting Nigeria, Bolivia, Benin,
Zambia, but also Uganda, Ghana, and Kenya
Manufacturing volume shock (e.g. garments), affecting
Cambodia, and to some extent, Bangladesh
Tourism receipt shock (Kenya, Cambodia, Zambia)
Multiple shocks of declining commodity prices and lower
demand for simple manufactured, affecting Indonesia.
Import shocks (lower oil prices in Bangladesh, Kenya)
13
Transmission belt (2)
Trade – export concentration
Country Products affected Combined share of total exports
(three latest years reported)
Bangladesh Garments 75.6%
Benin Cotton 68.6%
Bolivia Natural gas 48.0%
Cambodia Garments (HS61/62) 86.0%
Ghana Gold, cocoa 61.1%
Indonesia Crude oil, palm oil, natural rubber, aluminium,
woven female clothing, cocoa, coffee, copper
24.2%
Kenya Flowers, vegetables, coffee 20.3%
Nigeria Crude oil 93.0%
Uganda Coffee, gold, flowers, cotton 39.2%
Zambia Copper 67.6%
Source: Comtrade and ITC (for ) and country sources ()
14
Transmission belt (2): Trade ValueGarments in Cambodia vs Bangladesh
0
50
100
150
200
250
300
350
Jan
-06
Ap
r-06
Jul-
06
Oct-
06
Jan
-07
Ap
r-07
Jul-
07
Oct-
07
Jan
-08
Ap
r-08
Jul-
08
Oct-
08
Jan
-09
US
D m
Source: MOC March 6, 2009
0
100
200
300
400
500
600
700
800
900
1000
Jan-0
6
Feb-0
6
Mar-
06
Apr-
06
May-0
6
Jun-0
6
Jul-06
Aug-0
6
Sep-0
6
Oct-
06
Nov-0
6
Dec-0
6
Jan-0
7
Feb-0
7
Mar-
07
Apr-
07
May-0
7
Jun-0
7
Jul-07
Aug-0
7
Sep-0
7
Oct-
07
Nov-0
7
Dec-0
7
Jan-0
8
Feb-0
8
Mar-
08
Apr-
08
May-0
8
Jun-0
8
Jul-08
Aug-0
8
Sep-0
8
Oct-
08
Nov-0
8
Dec-0
8
mln
US
$China BangladeshLinear (Bangladesh) Linear (China)
Walmart effect: Bangladesh sells cheap products to US, Cambodia is
already in a slightly higher niche and hence more vulnerable
Cambodia garments exports mn USD US imports (mn USD)
15
Trade prices
Copper vs cocoa/gold prices
0
500
1000
1500
2000
2500
3000
3500
Ja
n-0
3
Ma
y-…
Se
p-0
3
Ja
n-0
4
Ma
y-…
Se
p-0
4
Ja
n-0
5
Ma
y-…
Se
p-0
5
Ja
n-0
6
Ma
y-…
Se
p-0
6
Ja
n-0
7
Ma
y-…
Se
p-0
7
Ja
n-0
8
Ma
y-…
Se
p-0
8
Ja
n-0
9
ICCO Cocoa prices in dollarsCopper prices LME in dollars
Zambia/DRC vs Ghana
• Export concentration matters
• Price changes matter
• Volume changes matter
It is different in Asia:
• manufacturing shutdown in MICs
16
Transmission belt (2)
Trade prices matter
US imports – by country US imports – by product
Source: BEA
2009 Q1/2008 Q1
Total, all countries (A-15) -30.5%Europe -27.2%
Canada/6/ -38.2%Latin America and Other Western
Hemisphere -29.8%Asia and Pacific -21.6%
Australia -9.3%China -10.9%
Hong Kong -47.9%India -21.8%
Indonesia -11.1%Japan -41.5%
Korea, Republic of -17.6%Malaysia -37.0%
Philippines -26.2%Singapore -25.4%
Taiwan -26.0%Thailand -23.9%
Other -7.2%Middle East -53.0%
Africa -56.7%
Members of OPEC -61.8%
2009m1-m4/ 2008m1-m4 %Platinum -77.5%Crude oil -55.1%Nickel -54.9%Copper -53.0%
Gem diamonds -52.2%Natural gas -50.6%Vehicles -50.5%
Liquefied propane and butane -49.9%
Petroleum preparations -49.6%Aluminum -34.7%
Metalworking machines -34.2%
Electrical machinery (4) -26.7%
Iron and steel mill products -20.7%
Textile yarn, fabric -20.2%Clothing -10.8%Toys, games, and sporting goods -9.9%Footwear -8.3%
Gold, nonmonetary -4.3%Rice 6.9%Sugar 20.3%Cigarettes 37.3%
17
Transmission belt (3&4)
Remittances and aid
Remittances likely to decline due to lower emigration flows or
stocks (Bangladesh, Cambodia). In Bangladesh, emigration
fell by 38.8% between February 2008 and February 2009.
Reduction of remittances in some countries. In Kenya,
remittances were down 27% in January 2009, compared to
January 2008, after a year of volatility.
Some countries are more aid dependent (e.g. Bangladesh)
than others (e.g. Kenya). Little evidence of a pull out by 09Q1
18
Transmission belt (3&4)
Remittances and aid
Remittances likely to decline due to lower emigration flows or
stocks (Bangladesh, Cambodia). In Bangladesh, emigration
fell by 38.8% between February 2008 and February 2009.
Reduction of remittances in some countries. In Kenya,
remittances were down 27% in January 2009, compared to
January 2008, after a year of volatility.
Some countries are more aid dependent (e.g. Bangladesh)
than others (e.g. Kenya). Little evidence of a pull out by 09Q1
19
Growth effects
Effects differ (e.g. vulnerability, openness, sectoral
distribution, growth constraints). Cambodia from 10% to 0%
Source: Cambodia case study
-0.5
4.9
4.84.7
610.210.8
13.3
10.38.5
6.6
1
-5
0
5
10
15
2002 2003 2004 2005 2006 2007 2008e 2009p
IMF (old proj.) IMF(new proj.) World Bank
ADB Government EIU
20
Development and poverty
Significant job losses. Cambodia lost 51,000 garments jobs
(around 15% of garment workers).15,000 lost in construction.
Zambia lost 8,100 (25%) of 30,000 mining jobs 2008.
Remittances play a key role, but declining in countries
Rural-urban shocks and gender challenges
Possible Increase in number of poor due to GFC
•300,000 in Bangladesh (0.2% of the population);
•110,000 in Cambodia (0.8% of the population);
•233,000 in Uganda (0.8% of the population);
•230,000 in Ghana (1% of the population); and
•650,000 in Indonesia (0.3% of the population).
Protests
21
Economic/social policy
responses differed
Economic policy responses vary widely, from „business as
usual‟ to more pro-active approaches:
Implementing / accelerating long term growth policies (e.g.
Cambodia); Implementing a fiscal stimulus (Indonesia, and now
Kenya); Small monetary policy steps, not much else (e.g. Uganda).
The institutional context (“resilience” differs). Some countries
(e.g. Kenya, Ghana, Bangladesh, Nigeria) have established a
global financial crisis task force.
Social policy responses range from
Reducing social sector allocations (Nigeria) to upgrading social
protection from low base (Cambodia), to expanding existing systems
to need (Indonesia)
22
Conclusions
Developing countries hit. The same transmission belts (trade, private
finance, aid, remittances) affected countries differently. Stresses visible.
Real channels affected more than financial channels. But don‟t downplay
financial flow issues either. And feedback loops!
Development prospect already affected significantly, but need to better
understand and monitor GFC effects and policy responses.
Policy responses differ
Developing countries (e.g. set up task forces to assess and scrutinise
responses; need for crisis-resilient growth strategies)
Developed countries (e.g. engage in rainbow fiscal stimulus abroad &
stay open)
Multilateral organisations (e.g. Counter cyclical role, reform).
23
Thank you
dw.tevelde@odi.org.uk
Monitoring the global financial crisis and policy implications in
developing and developed countries